CardLine’s PaymentSource quoted Henry Helgeson, CEO of a processing company called Merchant Warehouse, Inc. where he spouted the same old invalid argument that giant banks want American’s, Congress and the Federal Reserve to believe merchants will not pass on to their customers the billions in savings from the new Durbin lower debit fees.
Surprisingly, Mr. Helgeson acknowledges that his company WILL
pass on to its merchant customers the lower debit fees, even though they
are not required to. As a merchant (retail and eCommerce business owner) I am perplexed that Mr. Helgeson would risk his entire company, his merchant customers and perhaps soon-to-be former customers by taking sides with the giant banks by spouting their propaganda. MasterCard and Visa’s member banks reap nearly $62 billion dollars a year from these merchant interchange swipe fees, which were designed forty years ago to cover antiquated carbon copy analog payment network.
Unlike the electronic payment network member banks which are without real competition (MasterCard and Visa wield 80% market power), merchants will all be compelled to rebate all saved interchange fees. Merchants will not JUST lower prices, but we will hire more employees, invest in infrastructure and transparently benefit the economy rather than just the banks’ vaults. Even so, the legal argument is being clouded by the bank’s multi-million dollar advocacy campaign. The last thing Citigroup, JPMorgan Chase, Bank of America, Wells Fargo and thousands of other banks want you to know is that the argument is not about refunding savings to consumers, but rather it is all about anticompetitive illegal price-fixing.
As a lead plaintiff, suing MasterCard, Visa and major banks in what could be the largest anti-trust litigation in our nation’s history, I have been leading the battle against them for half a decade. For news and commentary updates follow WayTooHigh.com and Twitter
The Federal Reserve Board on Thursday requested comment on a proposed rule that would establish debit card interchange fee standards and prohibit network exclusivity arrangements and routing restrictions.
The Board’s proposal would implement the debit card interchange fee and routing provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Debit card interchange fees are established by payment card networks and paid by merchants to card issuers for each transaction.
The proposed new Regulation II, Debit-Card Interchange Fees and Routing, would establish standards for determining whether a debit card interchange fee received by a card issuer is reasonable and proportional to the cost incurred by the issuer for the transaction. These standards would apply to issuers that, together with their affiliates, have assets of $10 billion or more. Certain government-administered payment programs and reloadable general-use prepaid cards would be exempt from the interchange fee limitations.
The Board is requesting comment on two alternative interchange fee standards that would apply to all covered issuers: one based on each issuer’s costs, with a safe harbor (initially set at 7 cents per transaction) and a cap (initially set at 12 cents per transaction); and the other a stand-alone cap (initially set at 12 cents per transaction). Under both alternatives, circumvention or evasion of the interchange fee limitations would be prohibited. The Board also is requesting comment on possible frameworks for an adjustment to the interchange fees to reflect certain issuer costs associated with fraud prevention.
If the Board adopts either of these proposed standards in the final rule, the maximum allowable interchange fee received by covered issuers for debit card transactions would be more than 70 percent lower than the 2009 average, once the new rule takes effect on July 21, 2011.
The proposed rule would also prohibit all issuers and networks from restricting the number of networks over which debit card transactions may be processed. The Board is requesting comment on two alternative approaches: one alternative would require at least two unaffiliated networks per debit card, and the other would require at least two unaffiliated networks per debit card for each type of cardholder authorization method (such as signature or PIN). Under both alternatives, the issuers and networks would be prohibited from inhibiting a merchant’s ability to direct the routing of debit card transactions over any network that the issuer enabled to process them.
According to the recently released 2010 Federal Reserve payment study, debit card use in the United States now exceeds all other forms of noncash payments and, by number of payments, represents approximately 35 percent of total noncash payments.
Comments on the proposal are due by February 22, 2011.
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Last time VISA, MasterCard lost suit, paid ~$3B settlement then RAISED fees to more than cover, not this time! END #swipefees
Thanks @NACSOnline and your members for helping to pass financial reform & limit debit card #swipefees
Mitch Goldstone, Pres & CEO of ScanMyPhotos.com calls MasterCard/Visa #SwipeFees “a vulgar statement of credit card greed.”
MNRetailersAsso NRF Calls Passage of Landmark Swipe Fee Fix a Major Victory for Retailers and Consumers over Debit and Credit Card Fees http://bit.ly/9sihKO
National Restaurant Association Praises Senate Passage of Interchange Fee Reform http://bit.ly/d1eeIe
San Francisco-based Visa instituted an acquirer price increase last year (Digital Transactions News, March 17, 2009). In a conference call with analysts, Visa chief financial officer Byron H. Pollitt Jr. attributed the data-processing revenue growth to VisaNet’s 14% transaction increase and “the continuing effect of previously enacted pricing actions,” according to the Seeking Alpha transcript service.
It looks like another “pricing action” is on the way. Referring to an April price increase by MasterCard Inc., an analyst asked Visa executives if “you have raised merchant assessment pricing as well?” According to Seeking Alpha, chief executive Joseph W. Saunders responded, “Well, we’ve already announced an increase in our acquirers fees similar to the one that MasterCard did and ours is effective in July.” A Visa spokesperson declined further comment. As they do with interchange, acquirers are likely to pass on such network fee increases to their merchant clients.
Repost: National Retail Federation Senior Vice President and General Counsel Mallory Duncan Duncan discusses his October 8, 2009, testimony before the House Financial Services Committee and explains how the credit card industry is in an “arms race” to raise “swipe” fees.
NACSTV — April 26, 2010 — NACS, the association for convenience and petroleum retailing, delivered a record-setting number of consumer signatures to Congress on April 27, telling them that hidden credit and debit card swipe fees are unacceptable and that Congress must fix a clearly broken system. Learn more at http://www.fightswipefees.com
What are swipe fees? A swipe fee is a fee collected from retailers by the credit card companies and their member banks every time a credit or debit card is used to pay for a purchase. This fee is also known as “interchange.” This fee varies with type of card, size of merchant and other factors, but as much as $2 of every $100 you spend on plastic goes to card issuers. Credit and debit card interchange collected by Visa and MasterCard banks totaled about $48 billion in 2008, triple what it was in 2001. These fees raise prices for consumers. In 2008, the average American family paid about $427 in interchange fees.
How much do hidden swipe fees cost consumers?
Swipe fees add to the price of everything we buy, even if we choose not to use a credit or debit card. Americans paid about $48 billion in credit card swipe fees in 2008 alone, more than all other credit card fees combined.
How are swipe rates determined?
Visa and MasterCard each separately work with their member banks to set swipe fees. The agreement between these banks, which should compete for business, is illegal price fixing and it hurts consumers and merchants.
How fast are swipe fees increasing?
Visa and MasterCard collected about $48 billion in swipe fees in 2008, triple what was collected in 2001. In 2008, the average American family paid about $427 in swipe fees. Swipe fees are rising the fastest on gasoline purchases; payouts to the credit card industry have more than doubled since 2004. Credit card companies and their member banks have increased the amount of swipe fees collected by both increasing rates and encouraging more people to pay by plastic instead of cash.
Don’t these fees just cover the cost of processing the transactions?
Even though advances in technology continue to bring down the cost of transaction processing, swipe fees keep going up. A recent study concluded that only 13 percent of the swipe fees that the big credit card companies collect actually goes for transaction processing. Most of the money goes toward profits for the banks, rewards programs that benefit mostly affluent cardholders and direct mail marketing campaigns that clog mailboxes with nine billion unsolicited credit card offers every year. Many of those unsolicited mailings include so-called “convenience checks”that can be stolen and cashed by someone other than the authorized card holder. Yet the card companies and their banks spend only four percent of the swipe fees they collect on measures to protect consumers from this and other forms of credit card fraud.
How do swipe fee rates in the U.S. compare to fees in other countries?
U.S. swipe fees average close to two percent, while in other industrialized countries like Australia the rate is one-half of one percent and in Europe the rate for cross border transactions is less than one-third of one percent.
Why are swipe fees so high in the U.S.? Visa and MasterCard each separately work with their member banks collectively to set the price of swipe fees. This is illegal price fixing and hurts Americans. Credit card swipe fees have tripled since 2001 and there’s no end in sight, even though the actual cost of transaction processing continues to go down.
Do consumers who pay with cash also pay hidden swipe fees?
American consumers pay the hidden credit card swipe fee on virtually every purchase they make, whether they use a credit card or not because the credit card companies require merchants to spread the cost of these fees to all of their customers. The system is structured so that credit card companies make more money on each transaction when the price of retail goods increases. For example, even though the cost of processing a $1 transaction is virtually the same as processing a $100 transaction, the swipe fee paid on that $100 sale is higher because the swipe fee is calculated as a percentage of the total sale. The higher the sale, the higher the fee.
What is being done about it
What are merchants doing to change unfair swipe fees?
A group of retailers, supermarkets, drug stores, convenience stores, fuel stations, and other businesses are fighting against unfair credit card fees. They want a more competitive and transparent card system that works better for consumers and merchants alike and have formed the Merchants Payments Coalition and launched the website unfaircreditcardfees.com. The coalition’s member associations collectively represent about 2.7 million stores with approximately 50 million employees. Convenience stores across the nation, who are among the hardest hit by unfair swipe fees because of the fees assessed to gasoline sales, have taken action to alert their customers about these fees and are collecting millions of signatures urging Congress to reform the system. In addition, this website you are visiting (fightswipefees.com) makes it easy for consumers to sign an online petition to Congress or even send a letter directly to their representatives urging action to reform unfair swipe fees.
What are consumers doing to change unfair swipe fees?
Individual consumers are beginning to take action to urge Congress to reform unfair swipe fees. In the summer of 2009, nearly 1.7 million consumers signed petitions at 7-Eleven stores urging such action. This winter, millions more are signing similar petitions in convenience stores across the country or via this website (fightswipefees.com).
In addition, several national consumer organizations are urging Congress to take action. These include:
U.S. PIRG (Public Interest Research Group). In testimony before the House Financial Services Committee, Edmund Mierzwinski (PDF), PIRG’s consumer program director, supported legislation to reform unfair swipe fees and said:
Interchange fees are hidden charges paid by all Americans, regardless of whether they use credit, debit, checks or cash. These fees impose the greatest hardship on the most vulnerable consumers – the millions of American consumers without credit cards or banking relationships. These consumers basically subsidize credit and debit card usage by paying inflated prices – prices inflated by the billions of dollars of anticompetitive interchange fees. And unfortunately, those interchange fees continue to accelerate, because there is nothing to restrain Visa and MasterCard from charging consumers and merchants more.
Americans for Financial Reform. This is a coalition of 200 national, state and local consumer, labor, retiree, investor, community, and civil rights organizations who have come together to spearhead a campaign for real reform in our banking and financial system. In an official policy paper endorsing swipe fee reformt, the group said:
Markets don’t work when there are hidden fees and rules – and no one hides fees and rules better than the credit card companies. Credit card markets lack the information necessary for both consumers and merchants to make informed choices. For merchants, the markets lack adequate information because the associations prevent merchants from accurately informing consumers of the costs of credit card acceptance or attempting to direct them to more efficient and lower priced payment mechanisms. In fact, merchants have no alternative but to accept the card associations’ cards even when the associations significantly increase prices.
[And Visa, too. Interesting that the same banks that owned Visa own MasterCard; the two giant credit card association (which say they are independent) regularly act as if they are operating from the same corner office]
TORONTO, April 16 /CNW/ – Visa supports the Canadian government’s goal to encourage transparency and merchant choice within the payments marketplace – two important pillars on which Visa has built its business domestically and internationally.
Visa already provides merchants much of what today’s Code of Conduct requests payment networks offer, such as full transparency of interchange rates, merchant choice on acceptance of Visa Debit cards, and the ability of merchants to offer discounts for other methods of payment. We appreciate the government’s inclusion of all payment networks to ensure merchants are equally informed through a level playing field.
The obvious question is whether financial reform of the kind now being contemplated would have prevented some or all of the fraud that now seems to have flourished over the past decade. And the answer is yes.
For one thing, an independent consumer protection bureau could have helped limit predatory lending. Another provision in the proposed Senate bill, requiring that lenders retain 5 percent of the value of loans they make, would have limited the practice of making bad loans and quickly selling them off to unwary investors.
WASHINGTON — The National Retail Federation (NRF) expressed disappointment that a wide-ranging financial services reform bill unveiled earlier this week by Senate Banking Committee Chairman Christopher Dodd (D-Conn.) does not address the $48 billion in credit-card swipe fees paid by merchants and their customers each year.
“Chairman Dodd’s bill takes many steps to curb the excesses of the financial services industry, but the failure to address swipe fees is a glaring omission,” NRF senior vice president and general counsel Mallory Duncan said. “These fees drive up prices for the average family by hundreds of dollars every year and depress the ability of main street merchants to thrive and grow.”
“Financial services reform isn’t complete without swipe fee reform,” Duncan said. “Chairman Dodd has acknowledged the impact of these fees on consumers in the past, and we hope to see them addressed in the final version of this legislation.”
Visa and MasterCard banks charge merchants a fee called interchange each time one of their cards is swiped to pay for a purchase. With the fee averaging about 2%, “swipe fee” collections totaled $48 billion in 2008, triple the $16 billion collected when NRF began tracking the fees in 2001. Visa and MasterCard rules effectively force merchants to pass the fees on to consumers by requiring them to be included in the advertised price of merchandise and making discounts for cash, checks or cheaper forms of plastic difficult. As a result, the average household paid an estimated $427 in higher prices in 2008, up from $159 in 2001.
Dodd included a provision in last year’s Credit CARD Act requiring the Government Accountability Office (GAO) to conduct a study of interchange fees. The study concluded that credit-card swipe fees have been increasing despite card industry claims that they have remained steady, that the fees drive up prices for consumers and that consumers could see lower prices if they were reduced. Dodd has also said that he would consider legislation barring Visa and MasterCard placing restrictions on merchants’ ability to offer a discount for cheaper forms of payment such as cash, checks and debit cards.
Three major bills that would address swipe fees are pending in Congress. H.R. 2695, the Credit Card Fair Fee Act, sponsored by Judiciary Committee Chairman John Conyers (D-Mich.) and Senate companion bill S. 1212, sponsored by Majority Whip Richard Durbin (D-Ill.) would require Visa and MasterCard banks to negotiate with merchants over the fees rather than continuing to impose them on a unilateral basis. H.R. 2382, the Credit Card Interchange Act, sponsored by Representative Peter Welch (D-Vt.) would require increased transparency, give the Federal Trade Commission (FTC) authority to prohibit interchange practices that violate consumer protection or anticompetition laws and make cash discounts easier.
NRF is the world’s largest retail trade association, with membership that comprises all retail formats and channels of distribution including department, specialty, discount, catalog, Internet, independent stores, chain restaurants, convenience stores, drug stores and grocery stores as well as the industry’s key trading partners of retail goods and services. NRF represents an industry with more than 1.6 million U.S. retail establishments, more than 24 million employees—about one in five American workers—and 2008 sales of $4.6 trillion. As the industry umbrella group, NRF also represents more than 100 state, national and international retail associations.
Hearing provided a critical opportunity to address the impact of hidden swipe fees and review possible solutions.
SACRAMENTO – Monday afternoon, California Assemblyman Pedro Nava, chair of the Assembly Banking and Finance Committee, held an investigative hearing on the impact of hidden credit card swipe fees on California consumers and small businesses. Californians paid nearly $5 billion in swipe fees in 2008.
Small-business owners and advocates know that these hidden fees — which total more than credit card annual fees, cash advance fees, over-the-limit fees, and late fees combined – are crippling Main Street businesses and hurting their customers at a time when they can least afford it.
This hearing provided a critical opportunity to address the impact of hidden swipe fees and review possible solutions. The hearing is particularly notable both because of the size and impact of the California economy in the United States and because Visa’s headquarters are located in the state.
“This hearing is important, because it shows that Assemblyman Nava is listening to his constituents and that he recognizes, at a time when the economy is already so bad, that we can’t afford to let Visa, MasterCard, and the big banks rake in billions of dollars in hidden fees on the backs of small businesses and consumers,” said Mitch Goldstone, president and CEO of ScanMyPhotos.com, an Irvine, Calif.-based retail and online business that feels the impact of ever-increasing swipe fees every day.
“It’s also important that it’s happening in California. First, because we have such a large economy on our own, and reforms that start here often get picked up across the country. And second, because Visa is headquartered in California, this represents a dramatic signal to them that lawmakers are joining small businesses and our customers in saying ‘enough is enough,’” said Goldstone in a press release.
“Reforms are needed to create a transparent process for businesses to negotiate rates and enhance public awareness of interchange fees, which continue to increase,” testified Liz Garner of the Food Marketing Institute the hearing.
“Card companies and banks collect an interchange fee averaging about 2 percent on every credit and debit card transaction, and can raise the rates at any time by any amount,” she said. “We are working for a more competitive and transparent card system that works better for consumers and merchants alike, and hearings like this one are a critical step in that process.”
Credit card interchange fees squeezed American consumers and businesses to the tune of $48 billion in 2008. These hidden fees are set in secret by the banks and credit card companies and charged to store owners every time they run a customer’s credit card.
Americans pay the highest swipe fee rates in the industrialized world. On average, two dollars of every $100 a consumer spends using a credit card goes directly to the credit card industry. That adds up to $427 a year for every American household. Since 2001, the amount Americans pay in swipe fees has tripled.
Since 1990, I have owned and operated a photo imaging business in Irvine called 30 Minute Photos Etc. and now ScanMyPhoto.com. Times are tough for a lot of retailers just like they are for a lot of our customers. But it’s not just the economy that make times tough for retailers and our customers. It’s the credit card industry.
The credit card business is designed to do better when Americans are doing worse. Visa, MasterCard and their bank partners are arbitrarily raising interest rates on existing credit and debit card, raising credit card late fees, and even charging interest on credit card debt that is paid on time.
But what actually cost consumers more is the huge, hidden fees on every credit card transaction known as interchange that is passed through to customers in the form of higher prices. Two dollars out of every $100 spent in the U.S. in stores and gas stations goes to pay interchange also known as swipe fees whether the customer uses plastic or not.
But it’s not just credit card hidden fees that are skyrocketing, debit card fees are also rising. As Andrew Martin wrote in “The Card Game – How Visa, Using Card Fees, Dominates a Market” in the New York Times on January 5, 2010, Visa pushed signature debit over PIN debit starting in the early 1990s because they could charge 13 times the fee for signature debit than they could for PIN debit – even though PIN debit is the more secure choice for the customer and less prone to ID theft.
That’s right. Visa decided to push signature debit even though it compromises cardholder security compared to PIN debit just to make more money for its member banks. Visa and MasterCard also have rules that prohibit merchants from telling customers that they are paying inflated fees at point of purchase due to swipe fees. Visa and MasterCard partner banks won’t disclose on their customer’s monthly card statements how much these fees cost them either. And merchants are prohibited from discounting the price for customers who pay by cash, checks, or lower cost debit, such as PIN.
It’s outrageous behavior like this by Visa, MasterCard, and their partner banks that led me to become the lead plaintiff in what may be the largest class-action antitrust litigation in U.S. history, one designed to help rein in the credit card industry.
Interchange fees were designed 40 years ago to cover the costs for manual credit card imprinting (remember carbon copy receipts?). Today, technology and other efficiencies have made credit card swipe fees all but unnecessary. There are no interchange fees when using store gift cards or writing checks – but due to unbridled market power of Visa, MasterCard and their partner banks there are still interchange swipe fees.
Ten years ago, when my company first started using digital scanning, it cost $5 dollars per photo because the process was so expensive. Today I charge 5 cents because the process has never been cheaper. Unlike the credit card industry, I operate in a free market. Even if I tried to charge $5 for digital scanning like ten years ago no one would pay it – they just go down the street to the next guy with a digital scanner.
It has never been cheaper to swipe a credit or debit card. But unlike the market for digital scanning – or for that matter gas, groceries, and all other retail goods and services — there is no competition down the street to lower the cost of card transactions. Visa and MasterCard control 80% of the card market and their respectively card networks set the price. That’s why credit card swipe fees, unlike retail prices, are the same in all fifty states. No wonder the cost of swipe to consumers has tripled since 2001 to $427 per average household.
Every other economically advanced country has either reformed interchange or is in the process of doing so. But largely because of the power of the credit card industry in Congress, Americans pay the highest credit and debit card swipe fees in the world. We pay four times what Australians pay for the exact same set of credit card goods and services. So write your congressperson, write your senator, and tell them that you want them to put out the fire that is burning a hole in your pocket.
CNN national political correspondent Jessica Yellin filed a report on Saturday on Your Bottom Line, hosted by Gerri Willis, examining credit-card interchange fees, “a hidden cost store owners say is crippling business.”
Estimates show that in 2008 banks collected $38 billion to $46 billion in swipe fees alone, and some in Congress say that’s way too much and a sign that too few banks control the credit-card business, said the report.
Here is a transcript of the report:
Gerri Willis, host of CNN’s Your Bottom Line: While consumers are outraged about sky-high credit-card fees, businesses across the country are feeling the crunch, too. CNN national political correspondent Jessica Yellin joins us now to break down interchange fees.
Yellin: Gerri, I didn’t know these fees existed until I reported this story. Banks make money every time you or I use a credit card. They charge merchants a fee just for accepting the card and, no surprise, businesses pass that cost on to you and me.
According to the National Retail Federation, in 2008 the average household spent $427 on these interchange fees alone. And some in Congress are finding it hard to change that.
Yellin: It’s a hidden cost store owners say is crippling business; it’s called a swipe fee. Each time a customer uses a Visa or MasterCard, business owners like Keith Lipert have to pay a fee and that’s passed on to consumers. [This item costs] $125?
Keith Lipert, Gallery Owner: That’s $125. So the interchange on $125 would be about $2.
Yellin: The fee can be as much as 3% of your purchase, and it adds up. Lipert says swipe fees cost him as much as rent and health care.
Lipert: As a shopkeeper, I’m getting a service or a convenience for the credit-card companies, and that is fair. My objection is that I’m not allowed to negotiate.
Yellin: Credit-card companies say it’s the cost of processing transactions. What are they really getting for that fee? What’s the service that’s being provided?
Trish Wexler, Electronic Payments Coalition: So they’ll get almost instant payment and guaranteed payment for it. Whereas my card issuer, I won’t pay them for another 30 days, so there’s the float on the funds, which is a big component.
Yellin: Estimates show that in 2008 banks collected $38 billion to $46 billion in swipe fees alone. Some in Congress say that’s way too much and a sign that too few banks control the credit-card business.
Rep. Peter Welch (D-Vt.): What we’ve seen, really, is that the financial services industry is starting to make its money not so much by providing reasonable service, but by manipulating price by having a lot of hidden fees, by having a lot of extra transaction costs in running up their profits by doing that in taking advantage of monopoly power.
Yellin: Several bills before Congress would reduce these rates by allowing businesses to negotiate with card companies, but don’t expect those bills to pass any time soon. The industry, which is spending big on lobbyists, insists lowering swipe fees would end up costing consumers in other ways.
Wexler: If interchange rates are forced down below what is sustainable for a card program, then rates are going to have to go up or rewards are going to have to go away. Those are the facts.
Yellin: But Lipert says that Washington should stand up to the banks.
Lipert: We need, as a country, to address this.
Yellin: Now, there’s another reform some in Congress are pushing for now—they want to let retailers charge a lower price if you pay cash. And in a different slightly higher you use your credit card. That way at least only credit-card users are paying these swipe fees, but Gerri, no surprise, so far banks and credit-card companies are fighting that reform, too.
Willis: All right, so obviously we’re seeing yet another fee being passed on to us through retailers. But, what can you do as a consumer?
Yellin: There are two things you can do. If you have to use your credit card, use your debit card, the swipe fee on that is lower than actually using a credit card. And the other is, if you choose a card that doesn’t have as many rewards on it, the swipe fee is lower, the banks are actually charging you for those rewards with that swipe fee.
Willis: All right, and you can always pay cash, there’s always cash. What other reforms might happen?
Yellin: Well, they’re talking about, first of all, disclosing these fees, so that you know what you’re paying. They’re talking about also reducing the cost of…fixing the cost of rewards charges so that you know what you’re paying on rewards cards and they can’t charge you more for that.
But here’s the really important one. There’s a discussion of allowing the Federal Trade Commission to determine if these practices are anti-competitive. That’s because these big banks are getting all together and deciding what the swipe fees should be and some say that’s colluding, that’s monopoly and it should change.
A California businessman has led a successful fight to prevent credit card companies from profiting on donations made to Haitian earthquake disaster relief.
Mitch Goldstone, owner of ScanMyPhotos.com, is among the U.S. business owners who have fought transaction fees collected by credit card companies.
Click here to listen to NPR Mallory Duncan, Mitch Goldstone radio interview.
Few consumers know, or care, what the difference is between signing their name and using their PIN number when they make a purchase using their debit card. Ah, but merchants do. That simple choice you make can add up to hundreds of millions, if not billions, of dollars in annual fees for merchants. If you sign (and 61% of us do), it can cost a merchant twice as much as using a PIN (which is less vulnerable to fraud). Costco won’t allow their customers to sign for transactions because of the higher fee. Visa and MasterCard dominate the market and they set the fees, which banks collect. Those fees (the ones mentioned above and others including something called an “interchange fee”) have some merchants outraged. So outraged that some have banned together to file the largest antitrust class-action lawsuit in US history.
Watch this Andrew Martin reported New York Times produced video about Visa and MasterCard merchant interchange fees. Profile and article includes Mitch Goldstone, president & CEO, ScanMyPhotos.com
A swipe fee is a fee collected from retailers by the credit card companies and their member banks every time a credit or debit card is used to pay for a purchase. This fee is also known as “interchange.” This fee varies with type of card, size of merchant and other factors, but as much as $2 of every $100 you spend on plastic goes to card issuers. Credit and debit card interchange collected by Visa and MasterCard banks totaled about $48 billion in 2008, triple what it was in 2001. These fees raise prices for consumers. In 2008, the average American family paid about $427 in interchange fees.
Swipe fees add to the price of everything we buy, even if we choose not to use a credit or debit card. Americans paid about $48 billion in credit card swipe fees in 2008 alone, more than all other credit card fees combined.
Visa and MasterCard each separately work with their member banks to set swipe fees. The agreement between these banks, which should compete for business, is illegal price fixing and it hurts consumers and merchants.
Visa and MasterCard collected about $48 billion in swipe fees in 2008, triple what was collected in 2001. In 2008, the average American family paid about $427 in swipe fees.
Swipe fees are rising the fastest on gasoline purchases; payouts to the credit card industry have more than doubled since 2004.
Credit card companies and their member banks have increased the amount of swipe fees collected by both increasing rates and encouraging more people to pay by plastic instead of cash.
Even though advances in technology continue to bring down the cost of transaction processing, swipe fees keep going up. A recent study concluded that only 13 percent of the swipe fees that the big credit card companies collect actually goes for transaction processing. Most of the money goes toward profits for the banks, rewards programs that benefit mostly affluent cardholders and direct mail marketing campaigns that clog mailboxes with nine billion unsolicited credit card offers every year.
Many of those unsolicited mailings include so-called “convenience checks”that can be stolen and cashed by someone other than the authorized card holder. Yet the card companies and their banks spend only four percent of the swipe fees they collect on measures to protect consumers from this and other forms of credit card fraud.
U.S. swipe fees average close to two percent, while in other industrialized countries like Australia the rate is one-half of one percent and in Europe the rate for cross border transactions is less than one-third of one percent.
Visa and MasterCard each separately work with their member banks collectively to set the price of swipe fees. This is illegal price fixing and hurts Americans. Credit card swipe fees have tripled since 2001 and there’s no end in sight, even though the actual cost of transaction processing continues to go down.
American consumers pay the hidden credit card swipe fee on virtually every purchase they make, whether they use a credit card or not because the credit card companies require merchants to spread the cost of these fees to all of their customers. The system is structured so that credit card companies make more money on each transaction when the price of retail goods increases. For example, even though the cost of processing a $1 transaction is virtually the same as processing a $100 transaction, the swipe fee paid on that $100 sale is higher because the swipe fee is calculated as a percentage of the total sale. The higher the sale, the higher the fee.
A group of retailers, supermarkets, drug stores, convenience stores, fuel stations, and other businesses are fighting against unfair credit card fees. They want a more competitive and transparent card system that works better for consumers and merchants alike and have formed the Merchants Payments Coalition and launched the website unfaircreditcardfees.com. The coalition’s member associations collectively represent about 2.7 million stores with approximately 50 million employees.
Convenience stores across the nation, who are among the hardest hit by unfair swipe fees because of the fees assessed to gasoline sales, have taken action to alert their customers about these fees and are collecting millions of signatures urging Congress to reform the system. In addition, this website you are visiting (fightswipefees.com) makes it easy for consumers to sign an online petition to Congress or even send a letter directly to their representatives urging action to reform unfair swipe fees.
Individual consumers are beginning to take action to urge Congress to reform unfair swipe fees. In the summer of 2009, nearly 1.7 million consumers signed petitions at 7-Eleven stores urging such action. This winter, millions more are signing similar petitions in convenience stores across the country or via this website (fightswipefees.com).
A rare bi-partisan consensus has emerged that the forces that drive free enterprise should also drive how swipe fees get set. Currently, Congress is considering legislation specifically focused on this issue as well as other bills that are expected to address reform. The following are key actions taken or expected to be taken in the near future:
H.R. 2965, the Credit Card Fair Fee Act and S. 1212, the Credit Card Fair Fee Act. These bills are very similar and each will allow merchants to come together and negotiate with the credit card companies and their banks swipe fee rates and acceptance terms. Similar legislation was passed by the House Judiciary Committee in 2008.
H.R. 2382, the Credit Card Interchange Fees Act. This bill will repeal some of the rules imposed by credit card companies on merchants that are anti-competitive, empower the Federal Trade Commission to take further action if necessary and will require disclosure of swipe fee rates and rules.
Government Accountability Office report on Rising Interchange Fees (PDF). This report confirms many of the most harmful aspects of unfair, hidden swipe fees. The report shows that the credit card companies and their issuing banks have been misleading the public about their increasing rates and about the benefits of credit cards to businesses. The report also outlines an unfair, anti-competitive system that hurts Main Street businesses and their customers in order to pad the banks’ bottom lines, with little relation to the actual costs of processing payments.
In addition, several national consumer organizations are urging Congress to take action. These include: U.S. PIRG (Public Interest Research Group). In testimony before the House Financial Services Committee, Edmund Mierzwinski (PDF), PIRG’s consumer program director, supported legislation to reform unfair swipe fees and said:
Interchange fees are hidden charges paid by all Americans, regardless of whether they use credit, debit, checks or cash. These fees impose the greatest hardship on the most vulnerable consumers – the millions of American consumers without credit cards or banking relationships. These consumers basically subsidize credit and debit card usage by paying inflated prices – prices inflated by the billions of dollars of anticompetitive interchange fees. And unfortunately, those interchange fees continue to accelerate, because there is nothing to restrain Visa and MasterCard from charging consumers and merchants more.
Americans for Financial Reform. This is a coalition of 200 national, state and local consumer, labor, retiree, investor, community, and civil rights organizations who have come together to spearhead a campaign for real reform in our banking and financial system. In an official policy paper endorsing swipe fee reformt, the group said:
Markets don’t work when there are hidden fees and rules – and no one hides fees and rules better than the credit card companies. Credit card markets lack the information necessary for both consumers and merchants to make informed choices. For merchants, the markets lack adequate information because the associations prevent merchants from accurately informing consumers of the costs of credit card acceptance or attempting to direct them to more efficient and lower priced payment mechanisms. In fact, merchants have no alternative but to accept the card associations’ cards even when the associations significantly increase prices.
“As credit card companies face rising public anger, new regulation from Washington and staggering new rates of default and bankruptcy, FRONTLINE correspondent Lowell Bergman investigates the future of the massive consumer loan industry and its impact on a fragile national economy.”
THE FIGHT OVER INTERCHANGE FEES: “Interchange fees are now the central issue in what is being called the largest private antitrust litigation in U.S. history. Five years ago, Mitch Goldstone, an independent owner of scanmyphotos.com, an online photo service company, was struggling to keep his Southern California shop afloat. He began scrutinizing every expense and revenue stream of his small business. When he realized that an already costly expense — interchange fees – was increasing, he was livid. “It got to the point where I had just a few employees and things were looking really bleak,” said Goldstone. “Interchange fees were the one expense that was going up, no matter what I did.” In 2005, Goldstone (PDF) and more than 30 other merchants filed antitrust lawsuits in U.S District Court against Visa, MasterCard and several of their member banks, accusing them of breaching federal antitrust law by fixing the prices on interchange fees.”
WASHINGTON–(BUSINESS WIRE)–The National Retail Federation today warned Congress that credit card companies are in an “arms race” to increase the $48 billion in “swipe” fees paid by merchants and their customers each year, and urged passage of legislation that would put rules governing the fees under the jurisdiction of the Federal Trade Commission.
“There is an arms race to create cards with higher fees and more bells and whistles,” NRF Senior Vice President and General Counsel Mallory Duncan said. “The market checks that would normally exist to curb this escalation in fees are diminished because the card companies know that every merchant is required to take these expensive new cards or lose their ability to accept any cards. The Welch-Shuster bill would allow the most expensive cards to be refused, and while we expect that few merchants would actually refuse cards if this were passed, it would make the card companies think before they reflexively introduce cards with higher fees.”
“Most consumers don’t know it, but every time they swipe a rewards card with its miles and concierge services, they are driving up the price of everything they buy even higher,” Duncan said. “This particularly hurts less-privileged Americans who don’t have rewards cards or can’t get cards at all because Visa and MasterCard rules effectively require that everyone pay the credit card price even if they are paying with cash, check, debit card or even food stamps.”
“There is no regulator that reviews whether credit card company rules are unfair, deceptive or anticompetitive,” Duncan said. “This legislation would deal with this absence of oversight by directing the Federal Trade Commission to review card company rules and prohibit practices that meet that description. That is the minimum level of protection that this market needs to begin to function properly.”
Duncan testified before the House Financial Services Committee today during a hearing on H.R. 2382, the Credit Card Interchange Act of 2009, sponsored by Representative Peter Welch, D-Vt., and co-sponsored by Representative Bill Shuster, R-Pa. The bill would require credit card companies to disclose interchange rates, terms and conditions, and give the Federal Trade Commission authority to review interchange and prohibit any practices that violate consumer protection or anti-competition laws. Merchants would be allowed to give cash discounts and set minimum credit card purchase amounts, and could choose which credit cards to accept.
Interchange is a fee averaging 2 percent that Visa and MasterCard banks charge merchants each time one of their credit cards is swiped to pay for a purchase. But Duncan explained to the committee that the rate can range from as low as about 1.5 percent for an ordinary card to 3 percent or more for “gold” and “platinum” cards that offer rewards like travel miles or concierge services. In recent years, card companies have created an escalating series of rewards cards – each carrying more rewards but also higher fees – and “upgraded” millions of consumers. The higher-fee cards can’t be turned down by merchants because of Visa and MasterCard’s “Honor All Cards” rule. The practice, along with marketing that has pushed the use of plastic and introduced cards into new areas like taxis, has helped triple interchange revenue from the $16 billion collected when NRF began tracking the fees in 2001 to the $48 billion collected last year.
Visa and MasterCard rules effectively force merchants to pass the fees on to consumers by requiring them to be included in the advertised price of merchandise and making cash discounts difficult. The result is that the average household paid an estimated $427 in higher prices last year, up from $159 in 2001.
Merchants have long sought to offer cash discounts, but Duncan said an amendment to this spring’s credit card reform bill that would have blocked credit card companies from interfering with that ability was met with “howls of protest’ from the card industry and was not included in the final measure.
The National Retail Federation is the world’s largest retail trade association, with membership that comprises all retail formats and channels of distribution including department, specialty, discount, catalog, Internet, independent stores, chain restaurants, drug stores and grocery stores as well as the industry’s key trading partners of retail goods and services. NRF represents an industry with more than 1.6 million U.S. retail establishments, more than 24 million employees – about one in five American workers – and 2008 sales of $4.6 trillion. As the industry umbrella group, NRF also represents more than 100 state, national and international retail associations. www.nrf.com.
Electronic Payments Coalition, the group funded by Visa Inc., MasterCard Worldwide and the major banks and credit card issuers (payment card networks and financial services companies) just issued this press release. Click here.
We disagree with it, including this key point: The problem with cash discounts is that they don’t allow for different prices depending on the type of payment card used. There are about one-hundred separate merchant interchange fees and it is nearly impossible to know what the cost is for each transaction. In other words, they prevent Visa and MasterCard from competing over the cost of acceptance. The same principle applies to the honor-all-cards rules, which prevent merchants from exercising a preference for lower-cost cards, thereby preventing competitive forces from placing downward pressure on interchange fees. Not to mention the condescending, patronizing attitude that credit card companies know better than merchants how to treat a merchant’s customers.
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PRNewswire release
Merchants Can Already Discount for Cash, But Don’t – So What Would H.R. 2382 Really Do?
Electronic Payments Coalition Unveils the Truth About Rep. Peter Welch’s Interchange Bill
WASHINGTON, Oct. 7 /PRNewswire/ — In advance of the October 8th hearing in the House Financial Services Committee on H.R. 2382, “The Credit Card Interchange Fees Act,” sponsored by Rep. Peter Welch (D-VT), the Electronic Payments Coalition has issued the following statement:
“H.R. 2382 is one of the most egregious assaults on consumer protection that this country has seen in some time. Disguised as a measure to allow for cash discounts – something that is already allowed by federal law and by all card network contracts – the bill would instead open up the door for bait-and-switch advertising schemes, charging additional checkout fees at the register, and discrimination against certain card holders. The bill is chock full of provisions that mean one thing: consumers will pay more so merchants can pay less. Bottom line – retailers don’t want to pay their fair share for a service that brings them more sales and higher profits – and want their customers to pick up the tab instead.”
The Electronic Payments Coalition released today a document detailing the anti-consumer protection measures detailed in H.R. 2382. This document follows this statement.
Rep. Peter Welch’s H.R. 2382 – “The Credit Card Interchange Fees Act” – would…
Leave consumers vulnerable and unprotected against deceptive, bait-and-switch advertising.
Rep. Welch’s legislation would eliminate important consumer protections on how merchants are allowed to advertise their prices – restrictions that are in place expressly to protect consumers. This would allow retailers to promise one low price, then charge more – potentially a lot more – when the customer reaches the cash register. Consumers would be left unprotected, forced to pay the demanded price regardless of what was advertised – and retailers would profit unjustly from their dishonest schemes.
Leave consumers stranded at the checkout counter.
Imagine getting to the front of a long line at the grocery store, only to discover that the store doesn’t accept your alma mater’s credit card. Or they won’t accept the card that donates a few cents of every purchase to your favorite charity. This legislation allows merchants to pick and choose which cards they will accept – and which cards they won’t – with no advance warning to their customers.
Dramatically reduce – or eliminate – the card rewards programs that are used by 80% of American households.
H.R. 2382 would prohibit a slightly higher interchange rate for rewards cards – cards that are traditionally used by customers who are proven to spend more when they shop, in turn providing greater value to merchants. Unfortunately, merchants don’t want to pay for this benefit – and the result would be far fewer rewards for American consumers who value such programs. In fact, similar regulation in Australia has resulted in a 23% reduction in the value of rewards programs for consumers.”
Force businesses to disclose highly confidential financial information to the public and to their competitors.
H.R. 2382 would require every contract, rate agreement, and rule on merchant discount rates to be submitted to the Federal Reserve, which would then be responsible for publishing every bit of it. This would involve literally millions of documents, most containing highly sensitive financial information. The chaos that would result from the sheer volume of contracts – not to mention the compromised financial information – would be incredibly harmful to retailers and to financial institutions.
Falsely characterize interchange as a consumer fee, by requiring that it be disclosed on consumer statements.
It’s simple: consumers don’t pay for the cost of card acceptance. It’s a cost of doing business for merchants that accept cards. Despite this clear distinction, H.R. 2382 would force card issuers to print the amount of interchange, as well as the total amount various merchants paid for each charge – an amount that varies depending on what each merchant negotiated – on consumer’s credit or debit card statements. This is nonsensical, unrealistic, and would ultimately confuse consumers and the financial decisions they make.
About Electronic Payments Coalition
The Electronic Payments Coalition (EPC) includes credit unions, banks, and payment card networks that move electronic payments quickly and securely between millions of merchants and millions of consumers across the globe. EPC’s goal is to protect the value, innovation, convenience and competition in today’s growing electronic payments system. EPC educates policymakers, consumers, and the media on the system’s role economic growth, and the importance of protecting consumer choice and stability for the continued growth of global commerce. http://electronicpaymentscoalition.org/
Andrew Martin at The New York Times wrote (p. 1 Oct 6th) about the latest credit card prepaid pricing tricks. Of extra interest is the photo showing several prepaid “debit” cards and all challenge the results of the earlier MasterCard and Visa settlement; the “debit” cards are indistinuishable from traditional credit cards, other than the cleverly hidden word “debit.”
The MiCash Prepaid MasterCard docks cardholders a $9.95 activation fee. Like many competitors, it then charges numerous recurring fees, including $1.75 for each A.T.M. withdrawal, $1 for each A.T.M. balance inquiry, 50 cents for each purchase, $4 for monthly maintenance, $2 for inactivity after 60 days and $1 for a call to customer service.
The Millennium Advantage Prepaid MasterCard goes further, listing an application fee of up to $99. The Silver Prepaid MasterCard advertises that it does not charge for overdrafts as many debit cards do, but it gives itself the option of charging a $25 shortage fee if customers exceed their balance.
As reported earlier, beginning next week, rates charged by Visa and MasterCard and its member banks will again change. [ScanMYPhotos.com] received out letter of rate changes two weeks ago.
Two times each year, we receive the same formatted letter and confusing pricing matrixes that explain rates for accepting credit and debit cards are again changing. This time, it comes as U.S. Senator Chris Dodd proposes a significant change to these unfair fees. Any rate reduction must be met with recognizing the years of illegal profiteering from price-fixing by MasterCard, Visa and its member banks and issue refund for those overcharges -amount is in the hundreds of billions.
This has been a multi-billion dollar annual boondoggle for the banks at the expense of millions of consumers. The larger question is why haven’t the banks also addressed merchant interchange fees – which account for substantially more unfair costs to businesses and consumers?
It was the public outcry, an NBC Nightly News segment and extensive media coverage on debit card overdraft fees that helped cause this very rapid shift in policy. It is also being used as a marketing tool, as the credit card issuers can now promote they have waived and adjusted the terms of these overdraft fees to better compete. However, there is no competition when it comes to merchant interchange fees; retailers are still forced to accept Visa and MasterCard’s terms. Issuing banks can simply pass along any lost overdraft fees with higher merchant interchange fees, which simply means that ultimately the consumer still gets screwed.
My five-year legal battle as class-representative in an antitrust class-action against Visa, MasterCard and its member banks continues to reap unsubstantiated profits for the credit card companies with even greater costs.
Merchant interchange fees are an insult that is an atrocity and slap in the face of every consumer and merchant that accepts debit and credit cards. Along with the banks, which until Visa and MasterCard’s IPO’s controlled one-hundred percent of the two giant credit card associations, are continuing to wage a battle against its customers. If only they listened to their critics addressing these equally excessive charges.
You just have to watch this how-to video. The key facts about illegal antitrust price-fixing are omitted, as are the reasons why merchant interchange fees in the U.S. are upwards of six-times what other industrialized nations pay. Remember, this video and the organization promoting it is funded by the banks and Visa and MasterCard.
The problem is that few understand what these fees are; it is a hidden tax on consumers – amounting to upwards of $48 billion in anticompetitive charges each year. As proof, since this video was posted, only about 450 people viewed it, which my guess was largely from those who produced it.
A new study by the Merchants Payments Coalition finds that Americans pay a much higher percentage for interchange charges than the rest of the industrialized world.
WASHINGTON, DC – A new study by the Merchants Payments Coalition (MPC) found that if U.S. consumers paid the same low credit and debit card swipe fees as consumers in Australia pay, then the net benefit would have totaled $125 billion over the last four years.
Interchange fees, or “swipe fees,” cost Americans an average of $2 on every $100 they spend with credit cards — a higher percentage than anywhere else in the industrialized world. Why? Because other countries and their governments have been able to negotiate with the big banks and credit card companies for fair rates and transparency, the MPC notes. NACS is one of the founding members of the MPC.
But, in the United States merchants and their customers are still forced to pay sky-high interchange fees.
Interchange fees started out in the 1960s as a way for banks to cover the cost of processing credit card transactions. But even as technology has dropped that cost dramatically, the banks and credit card companies have pushed swipe fees higher and higher, turning it into a cash cow. For many businesses, credit card fees are now their single-highest non-labor operating cost.
With almost any other equipment, supplier or service, retailers can comparison-shop, negotiate or otherwise influence its final cost of doing business. Store owners can conserve on energy usage and seek out the most competitive prices for merchandise, just to cite a few examples.
Not so with credit card interchange fees. Visa and MasterCard control more than 80 percent of the marketplace. They set the fees in secret, give businesses no ability to negotiate and virtually insist they be buried in the price of merchandise. Unfortunately, the card companies’ hidden fees get passed on to all consumers in the form of higher prices and lower value for nearly everything they buy.
“It’s bad enough that the credit card companies force these hidden fees on us and our customers when we can least afford it,” noted NACS Vice Chairman of Government Relations Tom Robinson, president of Robinson Oil Corporation. “But when we are paying more than anywhere else in the world, and other countries have taken action to protect their citizens from abuse, it is inconceivable that our government would turn a blind eye to the issue. It is time for Congress to step up and defend the principles of the free-market economy by taking action on (interchange) fees.”
Though Congress and the White House have addressed other credit card reforms, the MPC is arguing that any fix will be incomplete without addressing interchange fees. Consider:
Banks raked in an estimated $48 billion in interchange fees in 2008 – an average of $427 per American household in just one year.
This $48 billion total is more than triple the amount collected as recently as in 2001.
Hidden interchange fees cost Americans more than all credit card annual fees, cash advance fees, over-the-limit fees, and late fees combined.
U.S. interchange fees are the highest in the developed world. The U.S. pays approximately 60 percent of interchange fees globally – about double the U.S. percentage share of global GDP.
Compared to the rest of the world, U.S. interchange fees are more than two times the rates in the U.K. and New Zealand, four times the rates in Australia and more than six times the cross-border rates recently agreed upon by MasterCard and the European Union.
Meanwhile, the payments industry has back with its own “study.”
In a September 17 press release, Visa announced the findings of a new study that shows that “consumers believe retailers benefit far more from accepting credit and debit cards than they pay in costs.
The press release noted that consumers believe merchants see card cost acceptance as a part of doing business, much like paying for utilities such as electricity.
“Retailers and their well-funded trade associations have filed lawsuits and are aggressively lobbying Congress to allow them to shift their business costs to consumers by allowing merchants to charge checkout fees whenever consumers use credit or debit cards. At the same time, national convenience store chains have launched misleading, in-store petition campaigns to cover for their checkout fee efforts, noted Visa’s press release.
“The response is loud and clear: consumers aren’t buying the message convenience store chains and big retailers are selling,” said Bill Sheedy, group president of the Americas for Visa Inc., in the release. “This research demonstrates that consumers are well aware that legislation is a Trojan horse that likely will lead to higher prices for cardholders while retailers pocket the savings.”
Click here to read the recent report profiling interchange merchant interchange fees rates. U.S. credit card interchange fees ~2X rates in UK, New Zealand. ~4X rates in Australia. ~6X cross border MasterCard rates in the EU
“Not only do other nations provide lower interchange rates, but we can also learn from other countries’ experiences with interchange reform. Major countries around the world have addressed interchange reform, with some already demonstrating beneficial results for their economies. In particular, lessons learned from experiences in Australia, New Zealand, Canada, and the European Union, provide instructive examples about why interchange reform makes economic sense in the U.S. – especially now.”
About three months ago, I bought new tires and was pleased to learn that it included a $50 rebate. But, the hoops to redeem that incentive were challenging.
Here is what happened:
Rather than receive a $50 check (which would have no interchange fee), a Visa-branded credit card was mailed and JUST received. The credit card issuers have created a giant windfall scheme for themselves at the expense of consumers.
The rules for redeeming the card is extensive and means that if there is a micro-balance, they keep it. I did a previous posting on this situation.
To access the funds on the electronic payment card you MUST present the card to the service station attendant inside when you fill up. Don’t try to insert it into the gas station pumps’ electronic card reader. It won’t work. Another rule is: “Please note. Ask the attendant to swipe the card after you have filled up to assure the success of your transaction.” Yeah, right! Try doing that, as clerks must swipe the card to reserve payment up front.
For regular checkouts, “you must always select ‘Credit’ when making purchases. You are authorized to make purchases that do not exceed your available balance.” This is a pure SCAM. Who makes an exact $50 purchase? Try using the “gift” card at a restaurant. Imagine being on a date, presenting the card and having the server explain that you can’t! Either way, the merchant is charged the much higher credit card interchange fee, rather than the debit card flat rate. If it was a check that we deposited into our bank account, there would be no fees and we easily would have the entire gift valued, rather than these games which reduces the value.
My guess is many consumers get frustrated and use part of the balance and dispose or file away the card and thus the issuer gets to keep the balance. What happens to the company that tendered the rebate “gift card? Did they pay full price to the card issuer, or a discount? I can only imagine the amount never redeemed.
Another scheme and pure profit center for the credit card issuers.
Improved processing technology and the weak economy should be driving card-acceptance prices down, according to Mitch Goldstone, president and chief executive of ScanMyPhotos.com in Irvine, Calif. “The only justification is when you have an anti-competitive business model and you can illegally fix prices,” says Goldstone, the lead plaintiff in a pending class-action lawsuit against bank card interchange. “That’s what it’s all about.”
Click here to read entire Digital Transactions article. (Aug 14, 2009)
In response to Andrew Martin’s July 16th “Card Fees Pit Retailers Against Banks” New York Times article, I submitted this response:
Dear Editor,
I appreciated your thorough article, ‘Card Fees Pit Retailers Against Banks,’ New York Times, July 16, 2009, describing the serious problem of exorbitant and ever-increasing interchange fees incurred by merchants in the United States.
It is ironic that in a day and age when many businesses face possible extinction due to rapid advancement in technology that card payment systems like Visa and MasterCard continue to thrive and grow using magnetic strips embedded in plastic cards, which is a device closer to the bygone era of carbon copies than to advance technology.
All merchants should applaud the populist pressure and Congressional efforts to confront this hidden tax on the economy represented by interchange fees. It is important to note, however, that the problem is even greater for Internet-based merchants who have no choice but to accept payment cards and are captives to this system developed by the banks.
Perhaps this is the reason that banks impose even higher interchange fees on internet merchants, who also often receive no payment guarantee. That is why we, along with many other traditional merchants, both large and small, are leading efforts in the In re Payment Card Interchange Fee antitrust lawsuit in the Eastern District of New York to eliminate interchange fees and other abusive rules imposed on merchants.
Hopefully, through our efforts, combined with those of other merchants, their customers and Congress, we can succeed in eliminating this abuse of market position by the banks and their card companies.
WayTooHigh: credit card issuers ADVERTISE to FORCE consumers to use plastic vs cash, then disassociate for taking responsibly for the surged in charges
WayTooHigh: Andrew Martin’s NY Times interchange article DOESN’T mention ZERO interchange fees in some nations, 4 writing checks, PINbased ATM in Canada
WayTooHigh: Not good news for small business financing and the economy: CIT says discussions with government have ceased, with no likelihood of support
WayTooHigh: Way to go MasterCard! Charge customers up to ~30% merchants up to ~5%, yet you get 16% discount on legal settlement http://ow.ly/gs5k#18000
WayTooHigh: It takes unbridled greed by Visa, MasterCard and the credit card issuers cartel to continue raising “SWIPE” interchange fees in a recession
WayTooHigh: ScanMyPhotos.com FORCED to accept Visa and MasterCard for our ecommerce business, as are most online companies, they wield 80% market power
WayTooHigh: Later this month stay tuned for more profiles on ScanMyPhotos.com & we’ll be sure to mention our battle against Visa, MasterCard fees #18000
WayTooHigh: technology has brought our cost to scan a photo from $5 to 5-cents, yet MasterCard and Visa keep raising their unjustfied interchange rates
According to Canada NewsWire, MasterCard provided the following key points regarding interchange and debit and WayTooHigh.com replied below.
MASTERCARD CANADA: Canada has a well-functioning payments system that provides significant convenience and security to consumers and merchants. It has continued to operate effectively and drive commerce despite a global credit crisis. More than $240 billion in Canadian commerce is expedited on credit card systems annually.
WAYTOOHIGH: Nobody denies that payment cards are convenient and relatively secure. However, these benefits have nothing to do with interchange fees and do not confer upon issuing banks a blank check to extort supracompetitive profits from merchants and consumers through a hidden tax. Price-fixing is illegal!
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MASTERCARD CANADA: A merchant that processes a credit card transaction enjoys guaranteed payment even at a time of increasing consumer default rates.
WAYTOOHIGH: Merchants are not permitted by the Visa and MasterCard rules to separately negotiate for payment guarantee services. This should be a negotiable service subject to competitive forces. Merchants should have the choice of whether to purchase these services from the card networks, from a third party, or not at all. The card networks and issuing banks already include the risk of default in the interest rates they charge to consumers. There is no justification for forcing merchants to cover this cost.
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MASTERCARD CANADA: Merchants benefit from increased sales, improved payment efficiency, reduced cash handling, customer convenience and satisfaction, e-commerce facilitation, international purchase handling, automatic currency conversion and settlement, among other benefits.
WAYTOOHIGH: There are no studies supporting the assertion that card usage increases sales, reduces checkout time, or increases consumer satisfaction. These are simple advertising puffery. To the extent that some of these claims are accurate, they are neither an excuse to price-fix supracompetitiveinterchange fees nor a justifiable expense to force upon merchants without negotiation. Just look at the tricks MasterCard and Visa (both were controlled by thousands of the same member banks) They offer sweepstakes, but the less expensive PIN-based debit cards are ineligible. They charge merchants for the high-costing affinity (frequent flier reward) signature cards, but many consumers never cash in those rewards. And now, the credit card companies are taking back the accrued rewards if a cardholder defaults by a single day, some unscrupulous companies are even paying cardholders to close their accounts, thus also losing those rewards.
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MASTERCARD CANADA: Interchange is a fee that passes between acquirers (who handle card processing for merchants) and card issuers. Issuers receive interchange to compensate them for significant costs and risks borne in offering credit cards including interest-free periods, account management, credit losses, fraud protection and processing.
WAYTOOHIGH: Regarding the assertion that merchants don’t pay interchange, the rebuttal is that the merchant discount rate automatically includes the interchange fee. The rest is mere semantics. Also, why would they talk about benefits to merchants from interchange fees if merchants weren’t paying those fees? Remember: interchange fees were designed forty-years ago, when retailers used antiquated manual credit card imprinters (ScanMyPhotos.com used these way back in the early 1990’s. The fee was cost-based; remember those stacks of carbon-copy receipts? Write a check, which passes through the Federal Reserve network and the there is no clearing (interchange) charge. Use a Starbucks gift card, and there is no interchange fee. Use a shopping mall card, good at multiple merchant locations, and there is no interchange charge. Buy a gift card for any retailer at a supermarket and even though there is a network of payment mechanisms in place, there is no interchange fee. Use a PIN-based Debit card in Canada and there is no interchange fee. Use a credit card in Iceland and… you get the idea. As to the “issuer compensation” argument, many of those expenses should be borne by the consumer, not the merchant (e.g. free funding period). Furthermore, the merchant should not be forced to purchase these alleged services as a price-fixed bundle. These should be available separately and negotiably.
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MASTERCARD CANADA: MasterCard’s Canadian interchange rates remain well below those of other developed markets including the United States and below similar fees for American Express in Canada. A sampling of other countries with higher blended interchange rates than Canada include Argentina, Brazil, Germany, Greece, Indonesia, Japan, Philippines, Poland, Portugal, Switzerland, Turkey and Uruguay.
WAYTOOHIGH: The relevant comparison is not Canada v. Uruguay, it’s competitive v. anticompetitive. The fact that MasterCard’s supracompetitive interchange rates are not quite as inflated in other countries as they are in North America doesn’t render them legal. MasterCard and Visa boast 80% market power and are two giant cartels with, until recently, the same representatives on their board of directors. Collusion, greed, illegal price-fixing and hundreds of billions of dollars paid by consumers and merchants over the years is why this battle may be the largest antitrust case in U.S. history, and why the banks are engaged in a death-spiral battle against its two core customers – consumers and merchants.
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MASTERCARD CANADA: MasterCard receives no revenue from interchange.
WAYTOOHIGH: MasterCard remains a puppet of the issuing banks, who receive enormous amounts of revenue from interchange. How does MasterCard explain the term “Merchant Discount Rate?” So, where do their revenues come from, then?
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MASTERCARD CANADA: Consumers do not pay interchange fees nor merchant fees.
WAYTOOHIGH: As with the argument that merchants don’t pay interchange, MasterCard exalts form over substance. As a practical matter, merchants must build in their overhead costs into the costs of their products. Increasing interchange fees effectively increases the cost of goods just as would increasing the cost of the merchant’s rent or electricity. The nearly $60 billion dollars in merchant interchange fees in the U.S. last year came from somewhere! It is a hidden tax that ultimately, the consumers pay.
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MASTERCARD CANADA: Merchants who choose to accept credit cards pay to participate in exchange for the benefits received. The fee accounts for the multiple benefits received.
WAYTOOHIGH: The idea that merchants “choose” to accept credit cards is a myth. In reality, merchants must accept payment cards in order to stay in business. Furthermore, interchange is not cost-based. If it were, it would be far, far lower. Look at the European Union, where cross-border interchange is mandated to be cost based by law. For Ecommerce businesses, like ScanMyPhotos.com and millions of other online companies we are forced to accept Visa and MasterCard – they have an 80% market power over the industry. Their millions of dollars invested in TV commercials training consumers not to pay with cash is all the more reason why MasterCard and Visa are like drug dealers, they get consumers trained and then force them to use their products. Yes, force, and we can explain why.
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MASTERCARD CANADA: Merchants pay a merchant fee established by their acquirer, not MasterCard. Interchange forms a portion, but not all, of that merchant fee.
WAYTOOHIGH: Interchange accounts for the vast majority of the merchant discount fee and is non-negotiable. The merchant discount fee is always higher than the interchange fee, meaning that merchants effectively pay interchange. If the truth were otherwise, we’d have acquirer lawsuits against the networks and the issuers. Get real, it’s all about MasterCard. Until recently, MasterCard and Visa were just brands (trade associations) fully owned by the banks. Whether the fees go to the banks or the two giant credit card association, the same pockets were being enriched.
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MASTERCARD CANADA: MasterCard’s 2008 adjustment to interchange rates was the first in seven years. Some rates were reduced.
WAYTOOHIGH: Whether or not that’s true, it doesn’t change the fact that the rates are much higher than they would be in a competitive environment (assuming they’d exist at all). Some rates were 300% higher than in 1999. Without warning, millions of merchants receive a twice yearly letter explaining the new rates, just days prior to it taking effect.
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MASTERCARD CANADA: A merchant can obtain his MasterCard interchange rates via http://www.mastercard.ca. This information has been available for more than two years. [There is a now similar website in the U.S. with more than one-hundred pages of rate schedules].
WAYTOOHIGH: Only two years? Why was MasterCard so secretive before that? Regardless, the merchant has no way of knowing what the interchange rate will be at the time of sale and therefore cannot make an educated decision about whether to accept the card. There is no transparency, and those website rate schedules are unclear and confusing. If MasterCard was honest, they would easily post the exact interchange fee as part of every charge card receipt (right under the sales tax breakdown).
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MASTERCARD CANADA: When interchange was regulated in Australia, it led to reduced card benefits to consumers and there is no evidence that retailers passed on savings in reduced prices.
WAYTOOHIGH: To allege that a reduction in overhead costs for an entire country’s merchants would not result in lower prices is to allege a price-fixing conspiracy among all merchants. If so-called “cardholder benefits” were only available because of a price-fixing conspiracy between issuing banks, we should not lose sleep over the disappearance of those benefits when the conspiracy is busted up. The rule of law is what matters, not cardholder benefits.
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MASTERCARD CANADA: MasterCard Worldwide has a PIN-based debit payment solution – Maestro(R) – used by more than 652 million cardholders in over 100 countries.
WAYTOOHIGH: Perhaps, but that doesn’t justify the price-fixing conspiracy and it doesn’t justify forcing merchants to pay supracompetitive interchange fees. MasterCard and its issuers don’t get a blank check just because they provide some benefits. Banks would need to provide debit cards even if they didn’t get interchange fees. Otherwise, it would be like banks providing a checking account but no checks.
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MASTERCARD CANADA: MasterCard Canada is preparing to expand its global debit processing system in Canada where it would deliver compelling benefits to Canadian consumers and merchants.
WAYTOOHIGH: MasterCard is only increasing its market power so that it can continue to force supracompetitive interchange fees on merchants.
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MASTERCARD CANADA: Using Maestro, Canadian consumers could use debit all over the world.
WAYTOOHIGH: See previous two arguments.
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MASTERCARD CANADA: Accepting Maestro means Canadian merchants could accept international travelers’ debit cards.
WAYTOOHIGH: See above.
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MASTERCARD CANADA: MasterCard will provide technological advancements including greater security and fraud protections, innovations
WAYTOOHIGH: See above.
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MASTERCARD CANADA: MasterCard operates a global debit infrastructure with centralized operations that run 24/7. The system delivers significantly greater scale than Canada’s incumbent debit network. It has had zero downtime in more than seven years.
WAYTOOHIGH: See above.
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MASTERCARD CANADA: MasterCard will create competition in the Canadian debit market where it has never existed.
WAYTOOHIGH: MasterCard is not talking about competition for merchant acceptance, only “competition” for issuing banks, which has the effect of increasing interchange rates at the expense of merchants. Payment cards are a two-sided market (issuance and acceptance) and when MasterCard, Visa and the member banks talk about so-called “competition,” they’re never talking about the merchant side of the market.
Congress is trying to rein in other abusive credit card fees, but if they don’t address interchange, they’ll miss the biggest threat of allabout 5 hours agofrom HootSuite
Q: Why hasn’t MasterCard, Visa, Chase, CitiGroup, BofA, etc… not been shut down for collusion and credit card price-gouging. A: Dunnoabout 6 hours agofrom HootSuite
If mortgage rates continue to decline, interest rates being lowered, why are Visa and MasterCard’s credit card interchange fees soaring?about 7 hours agofrom HootSuite
Question for merchants: Credit card processing fees are too high because? Tweet your experience with interchange fees @wayTooHighabout 12 hours agofrom HootSuite
Visa / MasterCard’s long history of anticomptitive price-fixing corrupts smart biz thinking; the marketplace should control competition8:10 PM Apr 17thfrom HootSuite
Q: How can banks (MasterCard / Visa) cite “competitive pressures” regarding need for soaring credit card rates? They own the Monopoly board!4:31 PM Apr 17thfrom HootSuite
For balance, to represent the millions of merchants (consumers) at the White House credit card meeting consider inviting Mitch Goldstone4:03 PM Apr 17thfrom HootSuite
We will be Tweeting non-stop on planned White House meeting on Thurs w/ credit card execs and URGE INTERCHANGE DISCUSSION http://ow.ly/38Q13:59 PM Apr 17thfrom HootSuite
Peter Barnes, Senior Washington Correspondent at FOXBusiness reports on White House / credit card banking exec meeting – http://ow.ly/38Pt3:56 PM Apr 17thfrom HootSuite
4 Karey Wutkowski,Patrick Rucker at Reuters NOTE: Any White House meeting with credit card cos MUST discuss interchange = $60bln annual fee3:49 PM Apr 17thfrom HootSuite
MasterCard increased its network access and brand usage fee from 0.5 cents per transaction to 1.85 cents, a 270% increase http://ow.ly/2LYl3:35 PM Apr 17thfrom HootSuite
Other credit card fee reforms are necessary, but don’t forget about the ~$60,000,000,000 interchange tax on businesses / consumers2:25 PM Apr 17thfrom HootSuite
Did Visa and MasterCard create a non-competitive environment in which businesses cannot negotiate for lower interchange rates? #credit1:40 PM Apr 17thfrom HootSuite
RT @JeffCole53: …credit card companies are like crack dealers, they ruin people’s lives, and then want to sell them even more of the drug10:53 AM Apr 17thfrom HootSuite
Avg. American household paid $427 in credit card interchange fees last year. Total interchange fee revenues have tripled since 2001.9:35 AM Apr 17thfrom HootSuite
Anatomy of How Technology Should Reduce MasterCard and Visa’s Member Banks’ Credit Card interchange Fees – http://ow.ly/2HrO #congress #bank8:10 AM Apr 17thfrom HootSuite
Congress can’t fix the financial services industry without reforming huge, hidden credit card interchange fees. #banking #congress8:05 AM Apr 17thfrom HootSuite
Congress can’t fix the financial services industry without reforming huge, hidden Visa / MasterCard, member banks’ interchange fees7:45 AM Apr 17thfrom HootSuite
in 2008, Americans paid twice as much in interchange fees than in credit card late fees and three times ATM fees!7:30 AM Apr 17thfrom HootSuite
Citigroup revenues neraly doubled to $24.79 billion in JUST the 1st Q. How much was derived from excessive credit card interchange fees?7:19 AM Apr 17thfrom HootSuite
Merchant interchange fees cover reward points for credit cards; when banks force cardholders to close accounts, NO REFUND of paid rewards7:00 AM Apr 17thfrom HootSuite
Merchants (consumers) are paying the interchange credit card fees, which includes funding reward points, but banks keep when accounts closed6:55 AM Apr 17thfrom HootSuite
Retailers across the nation are calling for interchange independence UnfairCreditCardFees.com5:05 AM Apr 17thfrom HootSuite
innovations in electronic payments should increase effeciencies and lower fees, that’s how non-monopoly cartels work9:30 PM Apr 16thfrom HootSuite
Ecommerce companies, like ScanMyPhotos.com and millions of others are forced to accept Visa and MaterCard; they wield 80% market power.5:50 PM Apr 16thfrom HootSuite
Can’t fix the economy and help small businesses without addressing the banks anticompetitive credit card interchange fees4:52 PM Apr 16thfrom HootSuite
$2,100,000,000 Earned in JUST the 1st Q by JP Morgan Chase. How much derived from antiquated credit card interchange fees? http://ow.ly/33ha4:44 PM Apr 16thfrom HootSuite
JP Morgan Chase, named defendant in our merchant antitrust class-action lawsuit against credit card cos reports 1st Q earnings $2.1 bln4:42 PM Apr 16thfrom HootSuite
Using Twitter as forum to humanize and as advocacy channel in battle against Visa, MasterCard credit card fees #banks #credit WayTooHigh.com3:45 PM Apr 16thfrom HootSuite
Visa and MasterCard’s fees MUST be stopped. Now that the U.S. Taxpapers own banks, interchange should disappear3:40 PM Apr 16thfrom HootSuite
Visa and MasterCard, two ‘competitors’ announce price increases of nearly 300 percent at the same time in a recession? – http://ow.ly/2LYH3:35 PM Apr 16thfrom HootSuite
Little transparency for interchange fees that banks pay each other for each credit, debit card and ATM transaction made by customers.1:35 PM Apr 16thfrom HootSuite
Seeking transparancy of Visa asnd MasterCard interchange rates. There is transparacy in Europe and AUS.11:36 AM Apr 16thfrom HootSuite
Rules by Visa and MasterCard are more than 1700 PAGES. Can’t discount for cash, can’t surcharge. can’t print out on receipt the fees11:35 AM Apr 16thfrom HootSuite
Tweeting on local and national small business leaders discussing the looming threat to economy by hidden credit card fees – interchange11:35 AM Apr 16thfrom HootSuite
Fighting interchange fees as Visa and Mastercard continue to raise credit card merchant interchange fees payment expense up 800+% since 199511:32 AM Apr 16thfrom HootSuite
Seeing D.C. support. Petro industry had $3.4 bln in profits last year. $7.6 bln in credit card fees.11:31 AM Apr 16thfrom HootSuite
One PA family business saw $4.6 mln in credit card fees, $1.0 mln more than prior year. Fed Up with Visa and MasterCard11:30 AM Apr 16thfrom HootSuite
Impact of uncontrolled crdit card fees on supermarkets and Main Street is devistating. Retailers are “madder than hell” at credit card cos.11:28 AM Apr 16thfrom HootSuite
Interchange is a nationwide proble,. Supermarkets after tax profit is about 1-2%, thus LESS THAN COST FOR CREDIT CARD FEES = LOSS11:28 AM Apr 16thfrom HootSuite
PA state wide trade assn is talking. Own about 6,000 stores in PA. Over past 5 years, members said interchaneg is fastest growing TAX11:27 AM Apr 16thfrom HootSuite
POLAND ABOLISHED INTERCHANGE FEES. EU rate is about 0.30%. U.S. about 2.0% for credit card merchant interchange fees11:26 AM Apr 16thfrom HootSuite
ONLY ABOUT 13% is used to cover COST OF INTERCHANGE electronic payment fees. U.S. pays HIGHEST RATE in WORLD11:26 AM Apr 16thfrom HootSuite
WHEN YOU PAY CASH, low interchange fee card, FOOD STAMPS, CHECKS, cover high reward cards (signature affinity cards)11:25 AM Apr 16thfrom HootSuite
When you write a check. NO INTERCHANGE FEE. Mercjhant, however only gets ~98% back from credit card fees11:24 AM Apr 16thfrom HootSuite
CONSUMERS don’t know about interchange fees. About 2% per transactions. [about 100 separate rates].11:23 AM Apr 16thfrom HootSuite
FIGHT against unfair credit card fees. Seeking legislative action. Credit card interchange fees HIDDEN.11:23 AM Apr 16thfrom HootSuite
Taylor West intro: Lyle Beckwith, National Assn Convienence Stores (NACS) representing retailers nationwide11:22 AM Apr 16thfrom HootSuite
Stand by for live Tweeting from NEWS CONFERENCE [ Pennsylvania Retailers Urge Rep. Gerlach to Take Action] #Mastercard #Visa #banking11:18 AM Apr 16thfrom HootSuite
Apple is about to sell its 1 billionth iPhone app, but think of all those micro-payment credit card interchange fees on 99-cent orders!10:35 AM Apr 16thfrom HootSuite
@WayTooHigh will be Tweeting LIVE from today’s press event. #MasterCard #Visa #banking #charge #credit card #interchange #bank fees10:15 AM Apr 16thfrom HootSuite
Telephone Press Conference Calling on Rep. Gerlach to Stand with Pennsylvania Consumers and Small Businesses – Credit Card Fees9:49 AM Apr 16thfrom HootSuite
Local and national small business leaders will host a conference call with state reporters to discuss hidden credit card fees; interchange.9:47 AM Apr 16thfrom HootSuite
It’s not often that the credit card industry faces a defeat in D.C. until now, watch video http://ow.ly/2FLz #charge #banks #TARP #antitrust9:45 AM Apr 16thfrom HootSuite
Q: Why hasn’t MasterCard, Visa, Chase, CitiGroup, BofA, etc… not been shut down for collusion and credit card price-gouging. A: Dunno7:00 AM Apr 16thfrom HootSuite
RT @marktzk: USAir is unilaterally canceling my BofA Visa miles card and issuing a Barclay’s Mastercard instead. Looking for a new card now6:32 AM Apr 16thfrom HootSuite
Did you know that there are no electronic payment merchant interchange fees for check clearing?6:40 PM Apr 15thfrom HootSuite
RT @NiamhD: I really hate when you check your bank account and the back have taken notified fees that you weren’t notified about…4:50 PM Apr 15thfrom HootSuite
RT @EFFIE325: @EVERYONE I’M ANGRY AT CREDIT CARD COMPANIES…THEY ARE RUINING ARE SCORES BY REDUCING OUR LIMITS PEOPLE COMPLAIN TO CONGRESS4:27 PM Apr 15thfrom HootSuite
RT @SeanMiller: Does anyone else hate Bank of America? 8 Overdraft Fees? Now I’ve been on hold all morning. Sweet.4:26 PM Apr 15thfrom HootSuite
Question for retailers: Credit card processing fees are too high because? Tweet your experience with interchange fees @wayTooHigh4:22 PM Apr 15thfrom HootSuite
AARP Magazine: Protect Your Priceless Photos – Let a scanning company digitize your pics. It’s cheap and easy as can be – http://ow.ly/2YoL3:28 PM Apr 15thfrom HootSuite
in 2008, Americans paid twice as much in interchange fees than in credit card late fees and three times ATM fees!2:55 PM Apr 15thfrom HootSuite
Happy that credit card interchange issue is being noticed by Chris Dodd and D.C. helps establish his independence from banking industry12:08 PM Apr 15thfrom HootSuite
Did you Know: The actual cost to transact an electronic payment is a tiny fraction of the total fees collected8:40 AM Apr 15thfrom HootSuite
The credit card interchange fee = biggest tax you’ve never heard of. Nearly $2 of every $100 charged goes directly to credit card industry8:30 AM Apr 15thfrom HootSuite
Merchant interchange fees cover reward points for credit cards; when banks force cardholders to close accounts, NO REFUND of paid rewards6:50 AM Apr 15thfrom HootSuite
RT @Whynatte: The US Airways flight attendant literally spent 15 minutes trying to sell a VISA card to passengers over loudspeaker.7:37 PM Apr 14thfrom HootSuite
RT @SuziB777 So they are saying the economy is coming back please tell my bus. bank account isn’t seeing any comebacks,,,, higher more fees7:29 PM Apr 14thfrom HootSuite
RT @DebtLawyer: Credit card companies are inclined to settle with card holders who are experiencing a genuine financial hardship.6:50 PM Apr 14thfrom HootSuite
Thanks to Twitter, retailers and consumers have instant updates in the war against Credit Card Cos; Visa, MasterCard and its member banks3:42 PM Apr 14thfrom HootSuite
When Visa and MasterCard began, there wasn’t Twitter to provide instant updates on their anticompetitive price-fixing.3:40 PM Apr 14thfrom HootSuite
RT @ms_elyse: just watched this documentary on Showtime called Maxed Out about credit card companies and debt. Everyone should watch it3:37 PM Apr 14thfrom HootSuite
in 2008, Americans paid twice as much in interchange fees than in credit card late fees and three times ATM fees!2:30 PM Apr 14thfrom HootSuite
The credit card interchange fee = biggest tax you’ve never heard of. Nearly $2 of every $100 charged goes directly to credit card industry2:30 PM Apr 14thfrom HootSuite
Merchants (consumers) are paying the interchange credit card fees, which includes funding reward points, but banks keep when accounts closed1:55 PM Apr 14thfrom HootSuite
Congress can’t fix the financial services industry without reforming huge, hidden credit card interchange fees. #banking #congress8:05 AM Apr 14thfrom HootSuite
Congress can’t fix the financial services industry without reforming huge, hidden Visa / MasterCard, member banks’ interchange fees6:45 AM Apr 14thfrom HootSuite
DOUBLE TAXATION: MasterCard and Visa gift cards charge purchase fees ~$5.95 plus merchant pays interchange fees6:20 AM Apr 14thfrom HootSuite
Are Visa and MasterCard illegally fixing the fees charged to merchants who accept their cards? #banking #credit11:35 PM Apr 13thfrom HootSuite
Did Visa and MasterCard create a non-competitive environment in which businesses cannot negotiate for lower interchange rates? #credit9:40 PM Apr 13thfrom HootSuite
More bad news for MasterCard, Visa and the banking industry: Minnesota court ruled in favor of Al Franken in his 2008 Senate race9:20 PM Apr 13thfrom HootSuite
MasterCard increased its network access and brand usage fee from 0.5 cents per transaction to 1.85 cents, a 270% increase http://ow.ly/2LYg5:35 PM Apr 13thfrom HootSuite
Non interchange. win 1 for the entrepreneur, ScanMyPhotos.com named #16 – Web100.com Top 100 photography-themed websites http://ow.ly/2MxZ5:27 PM Apr 13thfrom HootSuite
Good bye credit card Interchange Fees!!! Court ruled in favor of Al Franken, one less (R) Senator5:12 PM Apr 13thfrom HootSuite
More bad news for MasterCard, Visa and the banking industry: Minnesota court ruled in favor of Al Franken in his 2008 Senate race5:10 PM Apr 13thfrom HootSuite
Breaking News: Franken Declared Leading Vote-Getter in Minn. Senate Race5:09 PM Apr 13thfrom HootSuite
Visa and MasterCard, two ‘competitors’ announce price increases of nearly 300 percent at the same time in a recession? – http://ow.ly/2LYx4:35 PM Apr 13thfrom HootSuite
Are Bank of America and Citicorp planning another fee hike and trying to get it done before the new legislation? Is it retroactive?4:30 PM Apr 13thfrom HootSuite
Visa, MasterCard credit card interchange fees are excessive and abusive, but their 80% market power = don’t care4:05 PM Apr 13thfrom HootSuite
Visa and MasterCard’s fees MUST be stopped. Now that the U.S. Taxpapers own banks, interchange should disappear3:50 PM Apr 13thfrom HootSuite
Did you know, when you use your debit Pin-based card as a credit card, your funds are removed just as fast, and retailers pay MORE3:50 PM Apr 13thfrom HootSuite
Q: Why hasn’t MasterCard, Visa, Chase, CitiGroup, BofA, etc… not been shut down for collusion and credit card price-gouging. A: Dunno3:46 PM Apr 13thfrom HootSuite
Using Twitter as forum to humanize and as advocacy channel in battle against Visa, MasterCard credit card fees #banks #credit WayTooHigh.com3:31 PM Apr 13thfrom HootSuite
innovations in electronic payments should increase effeciencies and lower fees, that’s how non-monopoly cartels work3:30 PM Apr 13thfrom HootSuite
Banks are like drug dealers – they can’t resist Interchange profiteering; leading to billions in toxic creditcard debt : U.S. is bailing out2:40 PM Apr 13thfrom HootSuite
Avg. American household paid $427 in credit card interchange fees last year. Total interchange fee revenues have tripled since 2001.2:35 PM Apr 13thfrom HootSuite
Chase added a $10 monthly fee and increased the minimum payment from 2% to 5% for those who carry a large balance.2:35 PM Apr 13thfrom HootSuite
Other credit card fee reforms are necessary, but don’t forget about the ~$60,000,000,000 interchange tax on businesses / consumers2:25 PM Apr 13thfrom HootSuite
A leading argument to sustain soaring merchant interchange credit card fees is to cover the cost of affinity reward programs. The banks were passing along the frequent flyer reward costs to merchants, and thus consumers, who are the ones buying the merchandise.
Now that millions of cardholders are losing their accounts, those rewards are being terminated as well. When a cardholder is delinquent on their credit card bills by even a day, they risk losing all their accumulated reward points as well.
Well, what is it? If interchange fees are lowered, Visa and MasterCard’s argument is that consumers will have to pay higher fees. As it is, the banks are already raising rates, closing accounts and changing the terms with wanton disregard for their customers.
In baseball, it is easy to keep score – look at the scoreboard. In politics – read the polls. But, for interchange fees, run by the banking cartel, there is little notice, other than those bi-annual fee “adjustment” letters. As retailers continue battling against MasterCard and Visa – the two leading credit card associations with 80% market power and its member banks, it is also easy to keep score.
With nearly 1,300 postings on WayTooHigh.com– The Credit Card Interchange Report, we have yet to read any pro-interchange fee blogs that weren’t connected with the banking industry and their paid advocacy firms.
Well, there is always that one “pro consumer,” “pro competition” group that “enjoys the financial support of Visa,” but that really shouldn’t count. Where are the merchants championing 1.7% interchange fee rates, and challenging WayTooHigh.com?
Where are the U.S. retailers thanking Visa® and MasterCard® for charging among the highest rates in the world, while abroad, the interchange fees are 0.7%, 0.5% and even 0.0% – there are no interchange fee for debit PIN-based cards in Canada.
The reason for such silence?
Merchants understand they are being taken on a ride when cardholders present their affinity frequent flyer cards. The merchants, and thus the consumers are paying for these perks and the nearly $40 billion a year in interchange fees. Since we were the first to launch the merchant interchange litigation back in mid-2005, there have been no pro-interchange fee blogs that we are familiar with. That speaks volumes about our cause and the unfair fees.
Have you noticed the growing prominence of gift card kiosks filling up the end caps at many supermarkets and other retail locations? You can purchase gift cards for a variety of products, restaurants, attractions and unrelated shopping experiences.
Here is how gift cards work when you buy it at a supermarket or other large retailer:
You choose the value and brand, then their sales clerk rings up your order and validates the electronic payment card. Think of all the payment networks that are involved?There is an acquiring and issuing institution as the supermarket transaction is processed by a third party that pays the company issuing the card. There are added costs to print, merchandise and process the transactions. Yet, there are no added fees, unlike if you select a Visa or MasterCard branded gift card, where you pay an upfront fee of about $4.99 or higher, plus being forced to pay a monthly charge for non-use and other fees; think of Ticketmaster and all their extra charges.
The difference between the store electronic gift cards and those branded by Visa and MasterCard are they are without standard interchange fees. Those store-branded plastic gift cards are being transacted through an electronic payment network, but also without a monthly “maintenance” fee that Visa and MasterCard can separately impose.
Also absent are those mentioned fraud costs and other extra fees that Visa and MasterCard regularly present to try justifying their nearly 1.7% merchant interchange fee for transacting an electronic payment on the two leading credit card payment networks in the U.S., overseas, the interchange fee can be as low as .5% in Australia, .7% in the UK and zero in Canada for Pin-based debit card transactions.
I also don’t think regular store-branded cards charge a per transaction fee, which Visa and MasterCard can tack on of about 35-cents for each charge.
Many of the store gift cards can be used at multiple locations and even for ordering on their website for electronic payment transactions. Airline gift cards can be used at multiple airports, hotel gift cards can be used system wide at all their locations, yet they are without those interchange fees.
Micro balances on Visa and MasterCard gift cards are nearly a pure tax, as it is challenging to use those small amounts. And often merchants can’t process those small amounts. I tried it at a Chevron gas station, when I had a 35-cent balance and the card was denied. However, look at Starbucks and thousands of other merchants who will give you cash back. In California, it is a state law that when asked, stores must give shoppers cash back when the balance on the store gift card falls below ten dollars.
The moral is that retailers understand that gift cards are a benefit and provided value added sales, while the banks use credit and debit cards as a decades-long scheme to take on added fees just because they can. As more attention is being publicized on this issue, Visa and MasterCard’s monopolistic 80% market power and cartel-like control are angering many.
Although the letter was dated in mid-March, ScanMyPhotos.com, like millions of other merchants received the new rate schedules just days before the April 1st increase. As is a tradition, twice each year, we regularly receive these letters announcing the new Visa and MasterCard merchant fees.
Even as the lead plaintiff in a merchant interchange antitrust suit against Visa, MasterCard and its major (still solvent) member banks, I have no clue what the new rates are. Now, they just direct you to a website to review the merchant interchange fee rates.
VISA USA INTERCHANGE RATES (The new, April 1, 2009 rates, although in effect are unknown, as they have yet to be updated as of 7:30 pm (PDT, Wed, April 1, 2009)
WASHINGTON — New transaction fee rate increases announced by credit card companies Visa and MasterCard are slightly under 2 cents per affected transaction, yet are expected to raise more than $600 million in revenues, according to a report by DigitalTransactions.com
MasterCard will increase its “Network Access and Brand Usage Fee” April 17, from 0.5 cents per transaction to 1.85 cents—a 270 percent increase—while Visa will increase its “Acquiring Processing Fee” from 0.5 cents to 1.95 cents—a 290 percent increase, with additional fees possible, according to NACS—the Association for Convenience and Petroleum Retailing, which opposed the proposed hikes.
“This begs the question: How can two ‘competitors’ announce price increase of nearly 300 percent at the same time in a recession?” NACS Senior Vice President of Government Relations Lyle Beckwith said in a statement. “From what we’ve seen with credit card interchange fees, the answer is obviously that two competitors with excessive and abusive market power can do what they want.”
Merchant-acquiring experts expect merchants to bear the cost of these fees because acquirers will simply pass them through to clients. “The ones we’ve talked to aren’t too excited about it,” an acquiring executive, who asked for anonymity, told the Web site. “It’s one of the bigger fee hikes.”
In a statement Visa told DigitalTransactions.com: “Visa Inc. regularly reviews its pricing, as any business would, and makes adjustments where appropriate depending on such factors as the value delivered to clients and the need to be competitive. Over the years, Visa has become a symbol of international acceptance, reliability and convenience, based on its commitment to provide superior value to clients. These clients, in turn, are able to offer competitive products and services to their customers. Financial institutions set their pricing to cardholders and merchants.”
In 2007, credit card fees cost convenience stores $7.6 billion, with the largest component being credit card interchange fees, which are a fixed fee and a percentage of each transaction, according to NACS. These fees average 1.8 percent in the U.S., which has the highest interchange rate of any industrialized country.
“The credit card fees that U.S. retailers pay are outrageous,” Beckwith said. “These newly announced fee increases are beyond outrageous. At a time when small businesses are feeling the economic pain of the recession, it is unconscionable that Visa and MasterCard can give themselves their own ‘bailout’ by slapping 300 percent increases on their fees.”
During this unprecedented global financial meltdown , the United States and its citizens now own a sizable share of major financial institutions. The question is, why aren’t we demanding that our ownership stake in the banks force them to eliminate those unfair and anticompetitive merchant interchange fees?
To help win over credibility among merchants and consumers, the banks, along with MasterCard and Visa should be forced to move forward and reevaluate their long standing unbridled market power – every time a consumer uses an electronic payment credit or debit card. We own the banks and we should be running them too.
The crippled banking institution has achieved what MasterCard and Visa warned (about themselves) in their SEC IPO filings – they are becoming insolvent. The nearly $60 billion in annual merchant interchange fees and Visa and MasterCard’s merchant discount money grab must end and now is the time.
Think of what these billions in erroneous fees could do if put back in the hands of retailers and consumers, rather than funneled to Visa, MasterCard and its mismanaged member banks?
The banks are failing us. The government bailout proceeds are being blanketed to many far reaching overflowing pockets, like the scores of law firms that are battling millions of retailers over the merchant interchange fee antitrust litigation. It has now been about four years since launching the class-action antitrust litigation; millions of dollars have been spent to defend this unfair fee on Americans, but now that we are paying the bank’s legal fees and effectively suing ourselves, it’s time to draw more attention to and ask more questions.
[The U.S. government injected 45 billion taxpayer dollars into Bank of America and Citigroup, two of the named defendants in the merchant interchange litigation. And, more than $400 billion to cover the banks’ losses – $60 billion would go a long way to cover these fees].
1) Merchants’ interchange fees have risen even though network fees are decreasing.
2) The credit card companies have an unbridled ability to raise fees at will. Member banks of the credit card associations are in our opinion, co-conspirators.
3) From 1999 – 2005, the PIN debit fees rose 267 percent.
4) In the early 1990s there were about a dozen separate interchange fees, today there are nearly one hundred. These interchange fees seemingly always increase and have not decreased. 5) Visa and MasterCard fix uniform credit card interchange fees, which are agreed to and used by all Visa and MasterCard banks.
6) This collective horizontal price fixing violates Section 1 of the Sherman Act.
7) Even the cost for paying out reward benefits to affinity card holders has declined and is getting more stingy. Ex: American Airlines now charges a fee of $250 each- way to cash in frequent flier mileage to upgrade from coach to business-class on international flights. This is an audacious game few understand.
8) The credit card associations are extending loyalty and kick-back programs to consumers which few can actually figure out the value of. If merchants could even figure their actual cost – from nearly one-hundred separate rates – and listed the actual Interchange fee as a separate item on the customers’ receipt, people would be less likely to want frequent flier mileage rewards once they understood how much more they are actually paying for those perks.
9) This is a hidden tax on consumers and merchants.
10) With today’s technologies, the interchange structure is now inefficient. In our opinion, consumers don’t benefit and merchants don’t benefit.
11) Part of this inefficiency relates to credit card companies where only 1 in 2000 of their mail solicitations lead to signing up just one new cardholder. Credit card companies mailed out about 5.24 billion mail solicitations in 2005yet only 4-10ths of 1% reply. This means 5 billion pieces of mail are garbage. What other industry has such huge profits that they can afford to throw away 5 billion pieces of junk mail every year?
12) Why does it cost so much to use a credit and debit card, rather than with writing a check? There is a zero interchange fee for checks, the money goes directly from the consumer to the retailer. Example: The checking system works without any of these fees. The difference between credit card and check fees are also a study in competition; banks impose various fees on account holders and on merchants for writing and processing checks, from zero to a variety of rates in order to stay competitive.
13) Today, the card associations have lower costs and even no float expense when debit cards are used. With technology, there is less fraud and no need for paper receipts. Processing and telecommunication fees are lower and now automated. With interest rates so low for so long, even the cost of the the regular float has declined.
14) Merchants shouldn’t have to cover the cost for card holder credit risks. Defaults by card holders should not be paid by merchants, but rather, issuers should be more careful who they extend credit to.
15) There is no ability to bypass the credit card network. For instance, ScanMyPhotos.com(a lead defendant in the merchant interchange litigation) operates an international online photo scanning and digital imaging service where all online orders require transactions to be completed with credit cards, this parallels the entire online retail segment.
16) Part of the proof that the card association and their interchange fees are a monopoly is that even though rates continue to rise, merchants are forced to use their products.
17) Trickery and confusion. Even though there are lower interchange rates for debit cards, it is increasingly more difficult to distinguish debit cards. It’s difficult to see the “debit” or “check card” reference and retail clerks can easily ring up the sale as a charge card, thus paying higher rates.
18) When consumers present merchants with faulty magnetic strips on their cards it cannot be swiped by the card reader. This causes merchants to then manually enter the number, which costs more even though there is an identical risk to the card association. But, the charge for manually entering a card is excessively higher, and even higher if the address and zip code are not entered.
19) In 1994, the Visa and MasterCard interchange fees on a $100 transaction for the largest non-supermarkets was about 1% and 1.33%, today it is about 1.70% and higher. For the smallest non-supermarket merchants, the charge was about 1% and 1.31% in 1994; today it is higher too.
20) There is no added direct value or benefit to the merchant by accepting an affinity card or any other card, such as the Visa Signature card.
21) Australia, the European Union and the United Kingdom are samples where interchange regulations work. The U.S. is the only market where interchange fees are increasing. Canada, for example, has a zero interchange fee for debit cards and their PIN Network is the most popular way to transaction business. U.S. Interchange fees are 3-times higher than in Australia and two-times higher than in the UK. Australia is a great example – since the nation regulated these rates, merchants paid $500 million less. This translates into lower costs to consumers. The Australian CPI actually declined and there was an increase in card usage.
22) The only leverage merchants have is in choosing their payment processor. Those fees are highly competitive, yet the Interchange fees cannot be negotiated.
23) Because banks are now permitted to issue Amex and Discover cards, MBNA and Citibank plan to issue Amex cards, which means, merchants will be flooded with the higher costing premium cards (this translates into a 50% increase in costs from about 140 bp [basis points] to 210 bp. I anticipate they will then convert their classic cards to higher priced “signature” “affinity” and “business” cards.
24) The argument by Amex was that their card holders spend more money. Perhaps this is based on buying diamonds and luxury items, but when you are at a convenience store, the amount charged from a Visa card is typically the same as for Amex. As MBNA and Citibank switch from Visa to Amex, they are appealing to the same group of cardholders with the same spending patterns.
25) How can groups like “Americans for Consumer Education and Competition” be expected to be objective? [(ACEC was financially supported by VISA USA]. They suggest merchants want to pass along the interchange fees to consumers. The fact is that this litigation has nothing to do with “shifting’ costs from merchants to consumers, but rather it is about reforming the system so that competition works and will drive total costs down so that both merchants and cardholders have lower costs.
[source: WayTooHigh.com, originally posted Nov, 2005]
During the past few weeks, we have tempered our discussions of the failing bank, along with MasterCard and Visa’s roll in devastating the global economy. One issue we are not reading, amidst the record job losses and banking mismanagement is why the credit card giants aren’t lowering their anticompetitive merchant interchange fees?
At our company, we are reaping strong returns, due to our innovative new photo imaging business model at ScanMyPhotos.com. We reinvented our business, while Visa and MasterCard simply charged more for supporting and antiquated pricing model as its technology leaped ahead of what was once an analog payment network.
Their actions help fuel our amplified commitment for calling attention to Visa and MasterCard’s unfair merchant interchange rates and its member banks continued monopoly of charging nearly $60 billion in antiquated annual interchange fees when you use a credit and debit card.
Other businesses are struggling to survive, but we are more determined than ever to win this litigation. Many member banks have failed and some CEO’s have been dismissed. However, their allegedly illegal price-fixing and ruinous financial burden on merchants and consumers continues.
Today, we learn that Well Fargo, a named defendant in the multi billion dollar merchant interchange litigation has decided that The Wynn Hotel in Las Vegas is not the place to host their upcoming event for their home lending unit. The same for Citigroup (another named defendant) for trying to spend $50 million of taxpayer dollars on a corporate jet.
As millions of jobs are lost and our economy rests on the brink of collapse, the least MasterCard and Visa can provide is immediate relief from their anticompetitive and illegally-based price-fixing scheme. If Denny’s can give away free breakfasts after the Super Bowl, think of the marketing grist that MasterCard and Visa would gain from saving retailers and consumers billions of dollars.
There are just hours remaining until Visa, MasterCard and their member banks face a new administration in D.C. To kick things off, this article was published today by Digital Transactions Magazine. Let’s remember that this issue is all about illegal, anticompetitive price fixing and unbridfled market power.
For other news on ScanMyPhotos.com, visit our “In the News” updates, including recent coverage and interviews on Fox Business News and USA Today. See Twitter.com/ScanMyPhotos.comfor more updates too. We are expecting several local and one national network news program to broadcast our Inauguration Day events at our retail and Irvine, CA location.
Visa Inc, the world’s largest credit card network, said on Monday it set aside an additional $1.1 billion to cover legal expenses.
Before becoming a public company in March, Visa set aside $3 billion to cover lawsuits.
Under the terms of its initial public offering, Visa’s bank shareholders agreed to have their stake diluted to fund litigation in order to save other shareholders from direct losses from lawsuits in certain U.S. court cases.
The Federal Reserve lowers interest rates to near zero, oil prices plunge 60% in under a year, Chrysler shuts all its U.S. plants for 30-days, yet merchant interchange rates and Visa and MasterCard’s discount fees stay sky high. Why?
Now we learn that Treasury Secretary Henry Paulson has a plan to save Christmas by using taxpayer funds to bolster the credit card market. But before we shower taxpayer dollars indiscriminately at every down-at-heel, ragamuffin credit card lender, we should take a hard look at how they got themselves into so much trouble. Just throwing money at the credit card industry without requiring a systemic change in how it does business is merely asking for a repeat of the crisis.
The card industry’s business model is the heart of the problem and needs to change. Just as with subprime mortgages, the credit card business model creates a perverse incentive to lend indiscriminately and let people get into so much debt they can’t pay it back.
Card issuers make money on every credit card transaction, regardless of whether the consumer pays interest. The bank that has its name on the card receives around 2% of every transaction in a fee paid by the merchant (and passed on to all consumers in the form of higher prices). This is called the interchange fee. The banks will collect about $48 billion in interchange fees this year.
Because interchange is based on transaction volume, it creates an incentive for banks to issue as many cards as possible, regardless of the creditworthiness of the borrower. So, by creating a huge revenue stream unrelated to interest, interchange encourages banks to engage in reckless lending – and virtually every credit card loan is a “liar loan” with no income verification.
From The Wall Street Journal on Dec 8th, by reporter Lynn Cowan [see link], is an article about executive pay. The executive excesses at MasterCard and Visa could be further signs that the two giant credit card cartels are generating massive revenues from its discount interchange fee and other monopoly-generated charges.
Excerpt:
MasterCard’s final prospectus in May 2006 contained 15 pages describing how much and what types of compensation executives were paid, but wasn’t very specific about how bonuses or incentives were determined, listing 18 possible goals, from stock price to revenue, that could be used.
Two years later, rival Visa’s March 2008 IPO documents contained an executive compensation section that totaled 28 pages, and included how its executives’ pay compared to peer companies; the names of those peers; and what measurements, such as net income, that are used to determine executives’ bonuses.
MasterCard wasn’t spared forever. After the rule took effect, its next proxy statement’s executive-pay section had doubled in size to 30 pages, and contained much of the same level of detail that Visa provided.
For example, instead of listing 18 possible goals, it specified that net income and return on equity targets would be the basis of cash bonuses.
Visa declined to comment.
MasterCard spokesman Chris Monteiro said the disclosure process “certainly took time and effort” but resulted in a “transparent and detailed view” of the company’s compensation structure.
With all the added “fees” that Ticketmaster charges, I wonder whether this monopoly is also violating their agreements with Visa and MasterCard. Merchants are precluded from added extra fees to cover their interchange charges, but based on this Consumerist article, it seems that Ticketmaster is in violation. So, what will Visa and MasterCard do?
A strange event played out after Visa and MasterCard collectively warned in their respective SEC IPO filings that if the merchant interchange litigation was successful, both credit card associations risked “insolvency.”Who would have thought?To protect themselves from bankruptcy, banks are facing shotgun mergers with other named defendants. The financial institutions spent millions, not just on lavish parties, but in protecting their credit card pricing schemes (with today’s ultra tech-advanced efficiencies, these fees are largely unnecessary). Law firms are making millions representing the banks. Some are growing their entire operation, hiring staff and enjoying the benefits of their representation. Are their shareholders watching? During the past year, $8.3 trillion in shareholder wealth has been lost, so the once huge interchange fee boondoggle isn’t looking nearly as grand as before. However, it is still something that much be addressed, especially now as we face a global crisis of confidence in the banking system.
The rational for merchant credit card fees is mostly obsolete today. It was designed to be cost-based – to cover the four-party electronic payment network back when we had manual charge card receipts. The fees keep growing, even though efficiencies keep declining. Many other nations understand that whether the forced merchant credit card fees are .50% or .70 %, the rates are unfair and too high; the average merchant interchange credit card fee in the U.S. stands at about 1.70 percent.
This nearly $50 billion annual credit card fee scheme seemed like a hefty chuck of change. But, now that banks are facing billions in lost market capitalization and disdain from American consumers, they have even larger worries.The public’s unrestrained infuriation with the banks is just as vast as are the nation’s retailers. The approval ratings for the banks, and by proxy, Visa and MasterCard’s market power and alleged price fixing are getting as low as are their plunging Moody’s ratings. It is even getting to the point that the scorn against the banks and credit card companies are more humiliatingly low then even the anemic approval rating for outgoing President Bush. Presidential candidate John McCain and his cozy relationship with the banks and call to support them at the expense of consumers will be no better.
Back in 2005, which I was among the first to file a Federal antitrust complaint against Visa, MasterCard and its member banks, the battle was much simpler. Today, the banks are fighting for their future. They are at risk of being seized by a Federal nationalization of their operations. Visa and MasterCard are facing their own profound disgust for their business model, control of Washington legislators and lead cause for harming American families facing financial disaster.
It is turning out that what appeared like an ocean-sized legal challenge for the banks, Visa and MasterCard, has become diminutive in comparison to their larger hurdle and fiscal afflictions brought on by gross mismanagement, greed and un-American pursuits. Maybe Visa and MasterCard’s lawyers knew something when they cautioned that if the merchant interchange antitrust class-action litigation is successful their clients will also face bankruptcy.
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News Alert: Paulson gives new detail of bank ownership plan
WASHINGTON (MarketWatch) — Treasury Secretary Henry Paulson on Friday gave some new details of the emerging plans by the federal government to inject capital directly into a “broad array” of financial firms. In a statement after the G7 meeting, Paulson said that officials are working on a “standardized program that is open to a broad array of financial institutions.” The plan is to attract private capital to complement the government’s funds, he said. Paulson went out of his way to say existing shareholders would be protected, saying the government would only make the purchases through a “broadly available equity program” without any voting power, “except with the market standard terms to protect our rights as investors.
Along the way, thousandsof its member banks reaped millions. They glamorized
their balance sheets, which is now spiraling downwards. They tried to dodge legal liabilities as they unloaded part of their Visa and MasterCard vault. These member banks mutually controlled the giant credit card networks, some are now facing their own insolvency and government intervention.
CHICAGO — Calling outrageous credit card fees the most important battle faced by the industry, NACS President and CEO Hank Armour said the industry continues to put pressure on the issue, “2009 looks to be the watershed year in which we may finally get significant relief,” he said during the Opening General Session at the NACS Show 2008 on Oct. 5, 2008.
“This is the biggest issue that our industry has faced in decades, and we’ve taken it head on,” said Armour. “With the tremendous help and support of many of you, we made a lot of progress this year.” The Credit Card Fair Fee Act was successfully passed out of the House Judiciary Committee (H.R. 5546), and the legislation was also introduced in the Senate (S. 3086), he noted.
“We obviously have the credit card companies’ attention,” said Armour, referencing what he described as public relations stunts that Visa and MasterCard attempted this summer to deflect attention away from the issue of interchange. “While Visa and MasterCard claim they have fixed the problem, they haven’t. The only thing they fix — and they continue to do so — is the price,” said Armour to applause.
Pharmacist Greg Matthews uses a sign to inform customers about payments at Workers Choice Pharmacy.
Greg Matthews tries to discourage customers at his East Side pharmacy from using credit cards to pay for prescriptions because transaction fees on cards cuts into his already slim profit margin.
Private “insurance reimbursements are so bad, then you add the credit card (fee) to it, and they’re is just no profit at all,” said Matthews, owner of Workers Choice Pharmacy at 10501 Gateway West.
A lady the other day paid her $80 co-pay” on a $120 prescription with a credit card. “I was going to make $3.48,” but the credit-card fee took $1.98 so Matthews only made $1.50 on the transaction, he said. The other day a customer was going to pay a $1.05 prescription payment with a credit card, and “I said, ‘Forget it.’ I just gave it to him” because of the credit-card fee, he said.
Robert Barron, co-owner of Barron’s Superette, a small grocery store at 7555 Acapulco on the East Side, has a different view. He said he doesn’t mind paying the fees for credit cards and debit cards because those cost his store less than handling checks.
“It’s better to pay the fees than have to worry about insufficient fund checks, or checks you can never collect on,” Barron said. Barron estimated 90 percent of his customers now pay for their groceries with a debit or credit card, or food-stamp card.
In August, Barron’s paid $1,072 for debit- and credit- card fees, which includes fees by a company which processes the electronic payments for his store, Barron said.
Matthews said he pays an estimated $2,000 to $2,500 a year in credit-card fees for his small business. Credit-card transaction fees, specifically the interchange fee set by credit- card companies and collected by banks that issue the cards, have become a hot issue with retailers in recent years.
The Merchants Payments Coalition, a national group of retailers, including supermarkets, drug stores, convenience stores and others, has been campaigning to lower the fees. The coalition is pushing for legislation in the U.S. Congress to set up a mechanism to let retailers negotiate card transaction fees with the credit-card companies. Some members of the coalition also are part of pending lawsuits consolidated into one case in a New York federal court alleging price-fixing of fees by MasterCard, Visa and several banks.
“What we want them to do is negotiate with us (merchants) a price fair for their service,” said John Motley, senior vice president for the Food and Marketing Institute in Washington, D.C., a member of the coalition. “The reason the issue is so big for us (grocery stores) is the average profit within the food retailing industry in the U.S. is about 1.2 percent.” The credit-card fees increase product costs to consumers, he said.
“Interchange fees for credit-card transactions average around 2 percent of each transaction dollar amount,” Motley said. Supermarkets were offered a low interchange fee years ago to encourage supermarkets to accept cards, but that “rate is now disappearing” because premium credit cards are becoming more prevalent and have a higher fee, he said. Fees on debit cards used with a PIN number average around one-half percent, which is not as much of a problem, he said.
Gasoline retailers earlier this year began complaining about being hurt by rising credit-card fee costs because customers were charging larger amounts due to rising fuel prices. MasterCard and Visa made adjustments in fee charges for fuel retailers, the companies said in statements issued this year. Last year, $42 billion in interchange fees were collected, and this year that number is projected to grow to almost $49 billion, Motley said. That is a 16.7-percent increase. Only a small portion of the fees go for transaction costs, he said.
Visa and MasterCard, the nation’s two largest credit-card companies, said the companies each set their own card interchange rates, but they receive no revenue from interchange fees. The interchange rate is what the merchant’s bank pays to the cardholder’s bank for taking on the risk, said Denise Dunckel, a Washington, D.C.-based spokeswoman for Visa. “Visa makes its money from contracts with banks,” she said.
Sharon Gamsin, a spokeswoman for MasterCard’s headquarters in the New York City areas, told the El Paso Times in May that MasterCard makes its money from fees it charges banks that issue cards.
The interchange fee is part of a merchant discount fee, which is negotiated between the merchant and its bank for credit-card and debit-card transactions, according to information from MasterCard. The interchange rate is set high enough for banks to have an incentive to issue credit cards and low enough to encourage businesses to accept the cards, the credit-card companies said.
“I think merchants are getting a good value for what they pay for. The alternative (cash or checks) costs more” to handle,” said Linda Echard, president and CEO of ICBA Bancard in Washington, D.C., an Independent Community Bankers of America subsidiary that provides credit-card services to community banks. The interchange and merchant fees are important revenue sources that allow banks to stay in the credit-card business, she said.
In Australia, where the government stepped in and reduced interchange rates, the number of cards being issued has decreased, Echard said. A MasterCard statement said Australian credit- cardholders are now also paying higher interest rates and fees because of the decrease in interchange rates.
Credit fee facts
Interchange fees average 2 percent of the dollar amount of each transaction and are paid by a merchant’s bank to the cardholder’s bank to compensate the bank for risks and costs of maintaining credit- card accounts.
Merchants pay for interchange fees and other fees attached to credit- and debit-card transactions through a merchant discount fee. That fee goes to the merchant’s bank.
Visa and MasterCard said they make no revenue directly from interchange fees, but get their money through charges to banks that issue credit cards in their systems.
The banks and the credit card industry constantly cited Australia as an example of how dangerous it might be to let Americans control a bit more of their own money as well as do something tangible for small merchants especially those on the margins who sell food and gas.
The below RBA press release is powerful and certainly refutes, in particular, a MasterCard financed study claiming the sky was falling due to interchange reforms. This is one of the biggest reports yet challenging what the banks claim.
Australians pay now a ¼ of what we pay in the States. The incidence of credit card use there is actually higher than in the US, even though the credit card industry says that Australia is a disaster, dangerous to the card networks, businesses, and consumers. Yet, that nation spends so much money and effort to stay in the marketplace. Why not walk if interchange reform has destroyed the business model?
From the below news release: “In the Board’s view, the reforms have significantly improved competition in the Australian payments system. The reforms have liberalised access and removed restrictions on merchants that had weakened competition in the system. They have also increased transparency and have led to more appropriate price signals to consumers.”
Reserve Bank of Australia, press release, September 29, 2008
Reform of Australia’s payments system: 2007/08 review
The Reserve Bank has released the conclusions of the extensive review of the payments system reforms undertaken by the Payments System Board.
In the Board’s view, the reforms have significantly improved competition in the Australian payments system. The reforms have liberalised access and removed restrictions on merchants that had weakened competition in the system. They have also increased transparency and have led to more appropriate price signals to consumers.
These improvements in competition have allowed the Board to consider stepping back from the regulation of interchange fees. However, the Board is only prepared to do so if industry participants take further steps to reduce the risk that deregulated interchange fees in the credit card systems would increase from current levels. This reflects the Board’s ongoing concern that, despite the improvements over recent years, the competitive forces acting on interchange fees remain relatively weak.
As outlined in the Board’s Preliminary Conclusions released in April, the competitive environment would be further improved by: changes to the EFTPOS system to improve its ability to compete effectively with the international card schemes; further modifications to the honour-all-cards rules to allow merchants to make separate acceptance decisions for any card for which there is a separate interchange fee; and greater transparency regarding the various fees levied by the card schemes.
The Board’s concerns regarding the potential for credit card interchange fees to rise in the absence of regulation could also be addressed by the schemes providing a commitment to limit their average interchange fees to current levels (0.5 per cent of the transaction value). This possibility was raised during the consultation process and the Board is prepared to consider this approach. If such a commitment were forthcoming, the benefits from the above modification to the honour-all-cards rules would be reduced, and accordingly the Board would not see a need for this change to be made.
A final decision will be made in August 2009. If at that time the Board judges that insufficient progress has been made, interchange regulation will be retained. As discussed in the Preliminary Conclusions, if this were the outcome, the Board’s current thinking is that the benchmark for credit card interchange fees would be reduced from its current level of 0.5 per cent to 0.3 per cent. In the EFTPOS and scheme debit systems, the Board is proposing that the weighted average of interchange fees be constrained to be between 5 cents paid to the issuer and 5 cents paid to the acquirer. This would provide the systems with additional flexibility to that in the original proposal, while ensuring that the same regulatory framework applies to all debit card systems. If regulation of interchange fees were to continue, the Board would not require further modifications to the honour-all-cards rules to allow separate acceptance decisions for any card with a separate interchange fee.
In addition to its conclusions on the regulation of interchange fees, the Board has also concluded that:
there is no case for allowing the schemes to reimpose no-surcharge rules on merchants;
the current modification to the honour-all-cards rules, allowing separate acceptance decisions for scheme debit and credit cards, will remain. In addition, the Board encourages the schemes to permit merchants to make separate acceptance decisions on pre-paid cards and to ensure that interchange arrangements do not discriminate against merchants who do not accept all cards. The Board would consider regulation in these areas if this were necessary; and,
further transparency of scheme fees and average interchange fees will be required. The Bank will continue to discuss with industry participants how this might best be achieved.
Another outcome from the global banking crisis, including today’s news that Citigroup will acquire the banking operations of Wachovia, raises added concerns. While the banking industry’s two giant credit card associations want consumers to think that Visa and MasterCard play fairly, do not violate the law and offer boundless competition within the credit card market, the reality is that the banking industry consolidation is yielding an even more unstable and a more tilted playing area.
Banks are defaulting and being nationalized. How will this impact their credit card operations and will they attempt to further raise merchant interchange fees in an attempt to strengthen their balance sheets on the backs of businesses and consumers?
After Visa and MasterCard went public in an attempt to shift ownership from the banks, now many of the leading banks are consolidating and their percentage of control is creeping back.JP Morgan Chase, Bank of America and Citigroup, all named defendants in the Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, are amassing assets and extending their cartel-like market power over the electronic payment system.
Consumers and businesses have lost confidence in the banking industry. Its corporate leaders are under fired, or have been fired. Government intervention at this late hour is doomed and the question remains: why didn’t the government clamp down on the trillions in unstable and ruinous mortgages years ago. A similar question is why did the government permit banks to reap hundreds of billions in anticompetitive and unfair fees at the expense of merchants and consumers?
While the banking crisis is taking all the attention, merchant interchange fees continue to slice away at our nation’s economy. These fees generate nearly $50 billion each year at the expense of Americans; it removes much needed capital from our economy and is aggressively plundered by the banks as we are learning on the failed housing market and other disastrous schemes.
According to The Wall Street Journal (Sept 29), “Citigroup has put up for sale a Japanese call center valued at about $2 billion, the latest push by the financial conglomerate to drum up fresh capital.” If the banks are desperately seeking cash, as a merchant, I am extra worried that they will again hit up their interchange pricing fiefdom to get fast cash at the expense of retailers and consumers.
A funny thing happened on the way towards justice over Visa and MasterCard’s alleged price-fixing collusion charges. The anxiety faced by the two leading card associations and its thousands of member banks turned into a temporary distraction when many banks failed due to other pricing schemes.
Three-and-a-half years ago, when I became part of the first antitrust class action filings against Visa, MasterCard and its member banks, things seemed pretty calm. Millions of merchants knew that the credit card associations violated the law and illegally fixed prices and used their cartel-like market power to dominate. With treble damages, the potential financial liability amounted to anywhere north of $300 billion. That was a great deal of money. Visa and MasterCard warned that if they were found guilty, they risked insolvency.
How the financial markets and the world has changed. Many of the banks named as defendants are no more. Even big investment banks and brokerage firms have been bailed out or closed down. Some of the giant financial institutions were nationalized by the government, bought at fire sale prices or actually became insolvent and declared bankruptcy. Many of the regulations that were designed to preclude such a meltdown are the same types of antiquated policies that enable MasterCard and Visa to maintain their market power and charge fees that are unfair in today’s high tech world, where electronic transactions should move at lightening fast speed and cost next to nothing to process.
Who would have thought that what was a mighty complaint became dwarfed in size?
Today, Republicans are calling for the head of the SEC, supporting nationalization of a major industry, seeking to plunder another $700 billion and more to bail out what they knew all along was a slow motion car crash. Less regulation and oversight was their mantra.
The question is with the Credit Card Fair Fee Act and the Payment Card Interchange Fee and Merchant Discount Antitrust Litigation threatening to force MasterCard, Visa and its member banks to give up billions in unfair fees, what is the government doing now? Will they wait until even more money is wasted? Joining millions of retailers, I understand that through illegal antitrust price fixing, the nearly $50 billion in annual merchant interchange fees is wrong and in violation of the law.
According to the Wall Street Journal, today we read that Federal Reserve Chairman Ben Bernanke wants “swift action on a Treasury Department plan to buy illiquid mortgage-linked securities and avoid severe spillover effects on the economy.”
Why haven’t U.S. presidential candidates Barack Obama and John McCain both publicly addressed what amount to the largest antitrust case in our nation’s history. And, why is our government nearly silent on this issue which is placing an unfair burden on shop owners and consumers? It seems that they are chasing the news that the banks’ management failed and caused this nearly one-trillion dollar mess, but why aren’t they being proactive and commenting on Visa and MasterCard’s price fixing business model?
This is another mess decades in the making.
The once mighty banks are now looking weak and threatened. Their arguments about credit card fees is on the same level as they are handling their other financial crisis.
Our nation is facing extraordinary economic stress on the financial markets, but it seems that government and politicians only put out fires when the entire building is engulfed in flames and not before. The U.S. is forced to pay among the highest merchant interchange fees in the world, when technology and efficiencies over the years have led to nearly no actual costs to transact a credit card transaction.
Washington, D.C. – September 23, 2008 – Today, the House of Representatives passed the Credit Cardholders’ Bill of Rights Act, legislation to rein in unfair and deceptive credit card company practices. Congressman Peter Welch (D-VT) made the following floor statement in support of credit card company reforms and urged subsequent legislative action on credit card interchange fees, one anticompetitive card company practice not being specifically addressed today:
“This bill is the beginning of important reforms in credit cards – the beginning of increased protection for consumers of credit card companies. The other side of the coin, which we’re not taking up today but will hopefully get to, is for merchants who pay fees to credit card companies for every single credit card transaction – the so-called interchange fees.
Mr. Speaker, in the United States, our credit card interchange fees are the highest, the highest, in the entire world accounting for as much as 2% of the cost of every credit card transaction, in some cases a good deal more. These bloated interchange fees are passed on to the consumer. The average American family in fact pays an extra $300 a year in items they purchase as a result of credit cards.
I have introduced legislation, H.R. 6248, the Credit Card Interchange Fees Act, which would require credit card companies to disclose their interchange rates, terms, and conditions to consumers, businesses, and the public. In addition, the bill would empower the Federal Trade Commission to review these rates and rules and prohibit any practices that violate consumer-protection or anti-competitive laws. Chairman John Conyers also has important legislation – the Credit Card Fair Fee Act – that has been passed out of the Judiciary Committee and would give merchants a seat at the negotiating table to determine the fees assessed for every sale made by credit card.
In the next Congress, I look forward to continuing to work with my colleagues on the Financial Services Committee and the Judiciary Committee to pass legislation into law that protects both the consumer and the merchant from credit card companies.”
Congressman Peter Welch is the sponsor of HR 6248, the Credit Card Interchange Fees Act of 2008, and is also an original co-sponsor of HR 5546, the Credit Card Fair Fee Act. The Merchants Payments Coalition applauds Congressman Welch for his leadership on this important merchant and consumer issue and looks forward to prompt Congressional consideration of credit card interchange fees.
UnfairCreditCardFees.com is run by the Merchants Payments Coalition (MPC), a group of retailers, supermarkets, drug stores, convenience stores, fuel stations, on-line merchants and other businesses who are fighting against unfair credit card fees and fighting for a more competitive and transparent card system that works better for consumers and merchants alike. The coalition’s member associations collectively represent about 2.7 million stores with approximately 50 million employees. For further information, please visit http://www.unfaircreditcardfees.com
I just received a call from a Nova sales rep with an interesting pitch. He explained that every six months, Visa and MasterCard raise their rates. In Nova’s own words is the email followup I just received.
Mitch,
Thank you for your time on the phone today! As you know, I am a representative of Nova, one of the largest credit card processors in the industry. In addition to a very competitive rate, some of the other benefits of doing business with us areas follows:
Local Customer Support
Next Day Funding
FREE Supplies
No Term Commitment
Can Work with Existing Equipment
Seamless Transition
1 Year Rate Guarantee
Paid Cancellation / Software Fees (based on volume)
As we discussed, there was just a rate increase that occurred in April and there is another one coming up in October. Every 6 months, Visa/Mastercard raise their rates by 4-8 basis points. Many businesses take the time during these periods to reevaluate their situation. I would like the opportunity to prepare a formal credit card comparison for ScanMyPhotos.com. If you are able to fax a current statement to my attention, I am confident that I can secure you a competitive rate. Once received, it would only take me a day or so to get back to you. If you have any questions/concerns, please feel free to contact me. Thanks again Mitch and have a great weekend!
See below for a sample of signs that consumers, retailers and service station operators displayed during The Great American Rally Against Visa and MasterCard’s Fees on Gasoline.
For an update on how Visa and MasterCard are forcing service station operators to lose their life investment and close their doors, click here to read the Wall Street Journal, July 7th article, “Gas Stations Hit Skids: Higher Costs Close Nearly 3,000 in a Year” (subscription required).
Excerpt: “Aziz Hassan, who owns five stations in Sherman, knows all about the profit squeeze. A truckload of gasoline costs $35,000, compared with $10,000 just a few years ago, he said. Most of his profits are going to credit-card fees, he said, which eat up about nine cents of every gallon of gasoline his customers buy with a credit card. This leaves him little to cover costs such as electricity to run the pumps.”
SAMPLE PLACARDS DISPLAYED DURING THE GREAT AMERICAN RALLY AGAINST VISA AND MASTERCARD’s FEES ON GASOLINE
Consumers and Merchants Tell Congress to Support the Credit Card Fair Fee Act
IRVINE, Calif.–(BUSINESS WIRE) Consumers and merchants alike will rally in Irvine on July 3rd, Thursday morning at 7:30 – 9:00 am at the Chevron station at Jamboree and Barranca Parkway to call for independence from Visa and MasterCard’s hidden credit card fees that add another 8-10 cents a gallon on top of already skyrocketing gasoline prices.
Consumers and merchants will also be rallying in favor of the Credit Card Fair Fee Act which would end price-fixing by the credit card industry and help cut interchange fees. This bill would allow retailers to have a seat at the table to negotiate with the credit card industry for the terms and rates of the fees.
“Service station owners and consumers are paying record credit card fees as Visa, MasterCard, and their member banks reap the windfall from the 100% increase in the price of gasoline since 2007,” said Mitch Goldstone, event organizer and editor of WayTooHigh.com– The Credit Card Interchange Report. Goldstone is also president and CEO of 30 Minute Photos Etc. and ScanMyPhotos.com.
With $4-plus gasoline, gas customers typically shell out $2 or more to the credit card industry every time they fill up. Goldstone said, “Except for OPEC, nobody makes more money from skyrocketing gasoline prices on American consumers than Visa and MasterCard member banks – over $10 billion this year alone if gas prices stay above $4.”
“About two dollars of every $100 consumers spend in stores or buying gasoline goes directly to the credit card industry in the form of the interchange fee, the biggest credit card fee you’ve never heard of. Interchange has skyrocketed in recent years. Interchange is a hidden fee; the rates are set in secret by the credit card industry,” said Goldstone.
American businesses and consumers paid $42 billion in total interchange fees just in 2007 on all goods and services, far more than they paid in late fees, over-the-limit fees, annual fees, universal default, double cycle billing, exchange fees, and inactivity fees combined. Consumers not only pay more than they should through unfair fees but also through inflated retail prices, especially on gasoline.
The credit card industry has come under increased scrutiny from the public, consumer groups, the Federal Reserve, and Congress in the past three years for their unfair credit card practices, policies and fees. Interchange fees have been the subject of hearings three times in recent years under both the Republican and Democratic Congresses. Large number of Democrats and Republicans favor the Credit Card Fair Fee Act; it has bi-partisan support in both chambers of Congress.
When most were expecting the [Reserve Bank of Australia] RBA to step further forward and again confront a banking industry notorious for disregarding national competition policy in setting credit card transaction fees, the RBA is, apparently unable to pursue the issues – and the cardsharps – any further:
……………the Board……..is prepared to step back from the regulation of these fees on the condition that industry takes further steps to improve the competitive environment[1].
The Australian community is painfully well aware of banks’ preferences when it comes to managing the competitive environment: banks couple noisy complaints — four pillars bad, two pillars good – with predatory pricing practices while otherwise waiting for misfortune, such as the sub prime crisis, to set the scene for forced consolidation of retail intermediation.
For the pillars, 2007/08 was a vintage year as first mortgage brokers and then the next biggest bank were taken out of the game and some retail insurers were on the ropes, before the RBA conceded defeat on the regulation of card payment systems operating as a de-facto cartel. A well established pattern of events, similarly favouring banks, has long been aided and abetted by the RBA as a compliant regulator seemingly unable to understand how the game works: other regulators charged to protect the public interest also seem to have been gelded when it comes to dealing with the retail financial sector.
One explanation along these lines stresses regulatory failure: a decade of the RBA dilly dallying with interminable studies and inquiries – and pulled punches — allowing the cardsharps to restructure beyond its reach.
Perhaps the RBA has discreetly withheld the full story along the way, whistling for credibility as its card game was collapsing about its ears.
It was unsettling to see the unrelieved insouciance of the cardsharps over recent years when interchange fees were supposedly under threat in many countries. On reflection, the cardsharps had an ace up their sleeve, presumably as far back as 2002 when the RBA first reneged on a promise to reduce interchange fees close to zero and no explanation was given for the retreat.
A global sense of ‘was my face red’ regulators being mocked and put on the back foot will probably become clearer as a similar standoff develops in other countries where other regulators also substituted bluff and bluster for effective action.
Looming embarrassments include Europe where MasterCard is now unable to levy interchange fees on cross-border transactions while Visa still may. In the UK the OFT seems to have gone quietly to ground after a decade of threatening to outlaw interchange fees for credit cardand on-line debit card transactions.
In the US, where strong regulatory intervention is most needed, there is no sign at all of a responsible regulator: a private members’ bill before Congress that would require the cardsharps to negotiate lower card transaction fees will meet strong resistance from a banking lobby wanting to underwrite the status quo as part of a rescue strategy for a floundering industry.
We can only guess what has stayed the hand of putative regulators of retail payments systems for the past decade – it now seems that the cardsharps warned regulators that they would restructure their business, substituting ‘scheme fees’ levied directly on retailers for the interchange fees under threat of regulation. That guess may explain both the insouciance and the surrender: I am open to other explanations.
Back on the home front we will wait to see the detail of banks’ promised improvements in the competitive environment to be put to an RBA unable to regulate interchange-fees and apparently grasping for anything that imitates regulatory credibility. Presumably the banks will play the RBA’s game and promise ‘improvements’ but, with interchange fees no longer pivotal, they will not be inclined to offer anything of substance.
The form guide for bank promises is littered with disappointments.
The banking industry has grown used to doing as it likes with casual disregard for the public interest: any suggestion that local banks will now rollover and restore an appropriately competitive environment to the card transaction arena seems fancifully disturbing in its naivety.
Moreover, banks offering concessions in Australia may prejudice the cardsharps’ profitability internationally, derogating their newly acquired responsibilities to shareholders that are not member financial institutions.
…… and a layer of fairy dust
Allowing the RBA to review its own previous reform initiatives risked a loss of objectivity and, predictably, the RBA has put an unwarranted gloss on the success claimed for the outcome of its policies.
……………the reforms have met their main objectives — improving price signals; increasing transparency; improving access and creating a more soundly based competitive environment………..improved competition and efficiency in the payments system……..and substantial welfare gains to the community[2].
Words like ‘improving’ have very limited content without hard numbers that measure the extent of any claimed improvement. The persuasive hard numbers are about the relative importance of ‘credit card’ and ‘debit card’ transactions. The RBA collects and publishes these very numbers and, assessed against that critical benchmark, there has been no progress of real consequence over the past decade.
From the community perspective it is appropriate, frankly, to regard the continuing prominence of credit card transactions as evidence of the capacity and determination of the card cartel to exploit the community. As noted in a current CFO story[3]:
Ideally, card payments would be plain debits to customer transaction accounts. The transactions would be processed using an electronic network linking all banks, all retailers and all customers — locally and internationally, and over the counter, phone and internet. Within that ideal framework, retailers and customers would pay appropriate fees for transactions. Eligible customers could access a line of credit, paying interest on any net debt.
The RBA’s reform initiatives were superficially consistent with fostering this ideal – an ideal, incidentally, characteristic of card payment arrangements prevailing in some European countries where credit cards have a very minor role at best.
On the face of it, Australian retailers were given defensive options— scope to surcharge to recover excessive fees paid to banks for credit card transactions and to elect to accept only some cards (rather than ‘honour all cards’). The practical reality, however, is that most local retailers, already captive to the cardsharps, have little capacity to use these discretions: the use of credit cards is now so entrenched as to be ‘coin of the realm’ and for many transactions credit cards are contrived to be the only ‘legal tender’. At best the impact of the reforms on credit card activity has so far been very marginal (and it is always a flight of imagination in Australia to suggest ‘more competition’ or ‘new entrants’ in the retail payments system).
The only sensible public reaction to this preliminary report is renewed calls for an independent review: the likely upshot of any independent review would see the primary responsibility for regulating the retail payments system (and the structure of the retail banking industry more generally) reallocated to a specially constituted financial services regulator, perhaps a separate division of the ACCC as competition regulator.
One would like the RBA itself to clearly acknowledge this: after some two ‘lost’ decades as the regulator, but having made little if any effective progress to reform the retail payments system, it is well beyond time for a different policy regime.
……….an emerging sense of failure
It has been fairly evident for some time, and in a few countries, that one possible basis of the ideal — a dominant local EFTPOS debit-card system – has been lost. Late calls by the RBA in Australia, and its counterparts in Europe and elsewhere, to save or newly develop linked national EFTPOS schemes seem destined to fail.
Frankly, if the schemes now operated globally by the terrible twins were pulled into line with domestic (and international) criteria of fair play, there would be no need to ‘rescue’ local, domestic systems: the come-lately realization that it would be a good idea to have (linked) national EFTPOS operations competing with the terrible twins is itself an abject admission of prior regulatory failure now beyond redemption.
Equally relevant, with the same banks being the key participants in all card schemes operating nationally, it could be expected that the pricing policies of all schemes would be coordinated in due course to achieve much the same mirror-image outcome evident with the twins’ international schemes now.
Why would local banks, participating in the rort of the community as associates of the terrible twins, now repent and agree to favour a fairer local system that was less profitable to themselves – please, give us a break?
The demise of Bankcard is a relevant precedent for Australia’s EFTPOS system: the banks will do whatever is most profitable for themselves.
Apart from the redundant bilateral architecture and the contrary fee structure of EFTPOS – features intended to advantage the four pillars over small banks and others – this system seems set for terminal decline with local EFTPOS cards supplanted by scheme debit cards issued by the internationals.
More importantly, if regulators have lost control of card fees for all cards, it will not be long before different fee structures (scheme fees and interchange fees) emerge for transactions on international cards, credit and scheme-debit, which will make redundant any required limits on interchange fees alone.
The report has a pervasive sense of the RBA, as the regulator, having lost the battle after being outpointed and outgunned by the cardsharps.
Tell tale signs in a dissembling report include: …..participants will inevitably find ways around the regulations (page 12); …the Bank does not see interchange fees as… compensating for specific costs (page 7); surcharging is not yet sufficiently widespread…to be effective (page 12) and, ultimately, scheme fees could be used (like) interchange fees to raise revenue from retailers to pay card issuers and cardholders (page 14).
Implicit in this line of thinking is the long sensible conclusion that the only difference between credit cards and debit cards is the way in which the credit card product is contrived to be essential and then (over)priced by a cartel to exploit the community: so called free-credit and reward schemes were always and remain marketing tricks akin to a smoke-and-mirrors illusion.
As the card game newly embraces ‘scheme fees’ substituting for interchange fees, it is predictable that costs imposed on retailers and cardholders will increase while theadvertised benefits to cardholders – free credit and fly-by points — will be eroded with little reaction from a cardholder base already knowing they were practically worthless.
— a hollow threat is not a strategy
It is almost beyond comprehension that the RBA is now reduced to making a hollow-threat in appearing to protect the public interest in retail payments policy.
Against the backdrop of its apparent surrender, the RBA says it wants ‘the EFTPOS system ‘to be saved’ (and all that that implies); remnants of the ‘honour all cards’ rule removed and greater transparency around scheme fees and average interchange fees’: where is the credible operational content in that request?
The RBA goes onto say:
……………if these steps are not made, or ‘promised’ to be made, ‘interchange regulation would continue with a required narrowing in the spread of interchange fees, between credit cards and debit cards, from some 60 cents to 25 cents’: again, where is the substance in such a threat when the dominant schemes care little anymore about interchange fees per se (or credit cards per se) as they shift the emphasis to scheme fees (and scheme-debit cards) which are essentially the same thing? Never forget that reduced to its essentials a credit card is just a debit card with an overdraft line of credit – any remaining practical differences are wholly contrived to exploit the pricing power of the card-scheme cartel.
In the racing industry such a challenge is known as ‘a walk through hurdle’: just wait for the banks’ Swiss-cheese plan to save the local EFTPOS system.
Does anyone at the RBA – or anywhere else – truly believe that banks will voluntarily ‘improve the competitive environment’?Does anyone at the RBA – or anywhere else — truly doubt that the banks won’t spin and weave a persuasive smoke-and-mirrors story enabling the RBA to save face as it steps back from a humiliating defeat in a protracted regulatory battle fought without any sense of conviction or heart?
The only one-word conclusion to this charade is ‘’.
PART B: A WAY FORWARD
Ben Franklin probably said ‘a job not done remains to be done’ – or something similar.
Australia is ever more oppressed by banks become a law unto themselves, ever more powerful and ever more disdainful of a community left unprotected by its banking and competition regulators.
Day after day the community is regaled with politicians and regulators promising to outlaw abuses of market power associated with ‘cartels’; ‘predatory pricing’ and ‘tax lurks’.
Many consider the Australian banks to be past masters in perpetrating such offences with the many, nonetheless, not properly comprehending why such misconduct is not only allowed but actually aided and abetted by the very regulators – primarily the RBA – which the community believes was appointed to proscribe such malpractices and protect the public interest.
It was, accordingly, beyond the bounds of reasonable credibility to hear the new Treasurer vocally promoting the ideal of a competitive banking system while seemingly oblivious to the oxymoronic character of any expectation of such a practical outcome in Australia without a regulatory revolution.
Over recent years I have set out – including in submissions to the RBA – what I see as the mechanics of fundamental flaws in public policy settings conducive to abuses of market power by the banks.
I won’t labour the points again but again ask the RBA to reconsider their possible relevance to its loss of regulatory authority for the retail payments system — and the converse, initiatives to restore regulatory authority.
— two key points
Two key points, in summary, are:
The RBA should negotiate with the Australian Tax Office (ATO) to require banks to account for, and distribute to account holders as taxable income, the ‘deemed’ income inherent in banks bartering ‘free transactions for interest free deposits’ and giving ‘interest-free credit and flyer-point rewards’ on credit card purchases. It is beyond comprehension that any regulatory authority would expect the retail banking and payments system to function effectively while ever the four pillars are effectively subsidized extensively but unfairly – $ billions per annum — from the public purse. These hidden subsidies encourage banks to exploit their conduct of the retail banking and payments system in ways totally inimical to the public interest in its efficiency and fairness. The pressing need for reform on this front is a ‘no brainer’: banks will only start to pay attention to an appropriately ‘competitive’ alignment of costs and prices once their opportunity to exploit these tax-avoiding deals is curtailed.
The RBA, meantime, should cooperate with the ACCC to promote amendments to the Trade Practices Act to ensure the de-facto cartel arrangements underpinning joint-venture payment networks are tested against criteria of ‘maximum benefit’ to the community, not ‘net benefit’. A recommendation to this effect was made in 2002 in the Dawson Report reviewing the trade practices law. As things stand it is entirely inappropriate to allow the four pillars to operate cartels — credit cards, debit cards, EFTPOS and BPay — in ways which the RBA itself considers contrary to the public interest. The RBA (and ACCC) should similarly seek to join with counterpart trade practice authorities internationally to ensure network payment schemes operate in the public interest – the sense of this reform is underscored as the ‘terrible twins’ prepare to supplant conventional cash globally (and misappropriate seigniorage revenue) using conventional transaction cards ahead of introducing more sophisticated electronic-money alternatives.
[1]2007/08 Review,summary of the main conclusions (page 39)
WASHINGTON, June 27 MPC-Visa-fee-cuts Credit Card Fees on Gasoline Might Actually Be Higher, Not Lower, Under New Visa Program
WASHINGTON, June 27 /PRNewswire-USNewswire/ — Visa’s announcement yesterday regarding new interchange policies on gasoline sales shows that interchange fees raise gas prices, but it’s not clear what else the announcement means. If Visa is willing to admit that interchange fees are causing added pain at the pump, why won’t it admit its role in rising food and other consumer prices? Interchange fees cost Americans $42 billion last year – more than all other credit card fees combined. It inflates the cost of nearly everything consumers purchase whether they pay with plastic or cash.”While the devil is always in the details and we haven’t seen any details yet, it looks like the new structure for credit cards combines a higher fixed fee with a lower percentage fee,” said Hank Armour, President and CEO of the National Association of Convenience Stores. “The net result of this combination may actually be higher fees for those transactions under $60 for those customers using regular Visa credit cards without a rewards program.”
On debit card transactions, the cap on interchange may only apply to gasoline purchases of more than $97.50. That is a small number of transactions – especially because Visa banks reserve the right not to give gasoline retailers anything more than $75 on a sale.
Unfortunately, we may not know the impact for months because Visa has said this will only affect debit card transactions on gasoline in mid-July and won’t affect credit card transactions until October – long after the end of the summer driving season (and the opportunity for Congressional action).
While we welcome ANY recognition by Visa of the interchange fee pain, the confusion and potential negative effects of these changes might have been avoided if this were the result of a negotiation between merchants and Visa. H.R. 5546 and S. 3086, the Credit Card Fair Fee Act, would allow that to happen and ensure a market process for interchange fees with benefits to consumers throughout the country. Visa and MasterCard have a collective 80-plus percent market share and that gives them a stranglehold on retailers. The legislation would counteract that problem. Currently, rates are set in secret and the process is hidden making it practically impossible for retailers and consumers to know how much they are really paying in credit card fees, or why.
The Merchants Payments Coalition (MPC), UnfairCreditCardFees.com, is a group of retailers, supermarkets, drug stores, convenience stores, fuel stations, on-line merchants and other businesses who are fighting against unfair credit card fees and fighting for a more competitive and transparent card system that works better for consumers and merchants alike. The coalition’s member associations collectively represent about 2.7 million stores with approximately 50 million employees. For further information, please visit
By bailing out the member banks, I wonder if the new MasterCard shareholders understand just how disingenuous the second largest electronic payment network is? From my prospective, Mastercard cares not about businesses or consumers. They care about protecting the last drop of interchange fees. And, it is a $50 billion dollar boondoggle.
Here is more proof: Review the news about MasterCard and Maestro cards.
Faced withthreats of massive fines by the E.U., the slippery credit card company waited until nearly the last moments to suspend its cross-boarder transaction fees in Europe. Based on their prior years of disdain for its customers, I am surprised the company did not suspend their fees on June 20th? A mischievous youth might play that game with their parents – awaiting the last second before they face punishment to atone for their transgressions. But, in this case, MasterCard played (in my opinion) a sinister and unethical game of stalling while recouping months of interchange fees. They literally were running the clock out and showing just how brazen their management team can be.
The E.U. granted MasterCard six months to change its fee structure. Today is June 13th and the deadline was June 21st. This action demonstrates why our antitrust litigation is so important. MasterCard is toying with nation’s, businesses and consumers. Their contempt for governments, businesses and consumers is another priceless example of why our more than three year battle is just heating up.
Now that an average 18-wheeler gas fill-up costs about $1,200, next time you see a truck take notice that they are helping to fund Visa, MasterCard and its member banks cardholder reward schemes. As trucking industry drivers use plastic to pay for topping off their tanks, about $25.00 merchant interchange fees are immediately funneled to the card associations and their member banks. When you review technological advancementsand the laws of efficiency, just how much of that $25.00 help support the electronic payment network? According to published reports, the cost to process an electronic transaction is about 13 percent – That means that the cost is about $3.25 from the standard 18-wheeler truck fill-up, while $21.75 (87%) helps explain why the merchant interchange fees are broken and unfair.
The total annual merchant interchange fees continue to soar and reflect a growing discontinuity with the nation’s recession and realities that technology and efficiencies should be lowering fees. Instead, according to Robin Sidel’s May 14th WSJ article [“Consumers May Pay For Credit-Card Bill“], merchant interchange fees “generated roughly $50 billion last year.” Robin explained on the phone this afternoon that this rate was based on information from The Nelson Report,
Just how monstrously tainted are these anticompetitive charge-card fees that violate federal antitrust laws?
Look at it this way: Visa and MasterCard’s member banks’ interchange fees last year were much greater than three-times Microsoft’s entire net income of $14.8 billion dollars last year. The total interchange fees charged to merchants and paid by consumers last year were greater than the combined net earnings of Chevron ($17.5 billion), Hewlett-Packard ($7.2), Intel ($6.2), Walt Disney ($4.6), Apple ($3.4), Lockheed Martin ($3.0) McDonald’s ($2.3), Federal Express ($2.0) and Walgreen ($2.0). [source: Forbes 400].
WayTooHigh.com – The Credit Card Interchange Report Comments:
Even financial interpreter Jim Cramer is in for a grueling week as Visa and MasterCard readies for what both companies warn might lead to their “insolvency” [according to their SEC filing statements].For an update on Thursday’s planned Capital Hill combat against the giant credit card associations and its member banks, click here to read Jessica Holzer’s May 12thThe Hill column.
You know there are splinters in Visa and MasterCard’s haywired argument when lobbyists for the banks and the credit unions join forces; while they are gasping, we are ready to further illuminate the issues. It has been more than three-years since launching the class-action complaint to arrest this $40 billion annual hidden tax on merchants and consumers.
Let us not forgot that interchange fees were designed decades ago to cover the cost of a four-party electronic payment network – back when we used manual credit card imprinters and mailed in thick bundles of carbon copy credit card receipts to clear the payments. Back then, it took days to transfer funds, today it is instant and efficient.
Today’s efficiencies have done away with the antiquated payment process, yet the fees are higher than ever. Why the disparity as interchange rates abroad are a fraction of the nearly 2.0% tax charged in the U.S.?
This is the “perfect storm.”
We are ready to explain why interchange fees are obsolete, illegal and anti-competitive. Even the banking industry’s shareholders are in for another bombshell so audible and eclipsing that the impact from their executive’s round of previously misfortunate decisions and billions in prior writeoffs may be petite in comparison. A trial by jury allows fort trebled damages.
When was the last time you heard the U.S. Federal Reserve explain that interchange fees “dampen innovation” for check writing? Never: there are no interchange fees to clear checks. Likewise, why hasn’t the Fed explained that merchants “derive huge benefits” from accepting paper checks for payment? Again, there are no fees to clear a check and if it is so significant a cost, why hasn’t the banking industry demanded interchange fees for that payment form?
The banking lobbyists are ready and so are we, but our story is being told by regular shop owners to personalize the issue. After years of toil, merchants and consumers are at the cusp of forcing the demise of these unbridled and unnecessary interchange fees on American’s and our neighbors around the world. The American public is fed up with the banking industry’s mismanagement and audacity; the days of cartel-like price-fixing will vanish, just as did those bulky manual credit card imprinters also disappear.
Visa and MasterCard profiting from a devastating natural disaster?
This is another image crisis for the two leading credit card associations and their thousands of member banks. When the public understands that with each electronic payment donation to help the people affected by the Asian cyclone, Visa and Mastercard are doing more than clearing the charges. They are reaping profits from a global tragedy. There should be additional pressure placed on their continued profiteering – this time at the expense of vital aid needed for that region of the world, ratherthan to help fund the banks’ other fiscal missteps.
If you thought that Visa, MasterCard and thousands of banks were heartless by reaping windfall profits during our economic energy crisis and record fuel prices, just wait. Even more dismaying than forcing credit and debit card holders to pay upwards of $2.50 for merchant interchange fees when they pay at the pump, is the current Asian disaster.
The United Nations estimates 1.5 million people have been “severely affected” by the May 2nd cyclone that swept through Myanmar. The death toll in that Cyclone-ravaged region could hit hundreds of thousands of people. What are Visa and MasterCard doing? As far as we know, every time an electronic payment donation is sent to The American Red Cross and other relief efforts, the two leading credit card associations and their thousands of member banks make a profit. The interchange fee, which could be upwards of 2.0% from each donation is being delivered to financial institutions, rather than in direct aid to the people in need.
Even worse is that the American Red Cross is in violation of their credit card merchant agreement and is risking disqualification from Visa and MasterCard because nation’s premier emergency response organization demands a minimum electronic payment of $5.00. Click here to read how they explain the merchant interchange fee issue.
Will Visa and MasterCard waive its interchange fees for American Red Cross and other related transactions?
As the pressure grows for Citigroup Inc’s new CEO, Vikram Pandit to address the troubled bank’s missteps, I wonder whether he has the influence to make the call to Visa and MasterCard on behalf of all the card associations’ member banks?
Before reprinting today’s Visa Inc. press release, these thoughts:
Our merchant interchange antitrust litigation is based on many years of alleged illegal activities. Just as if a convicted bank robber apologizes and cleans up their act, they are still in violation of the law. So too are Visa and MasterCard. Because most of the same banks that control a large percentage of Visa’s newly public shares are also owners of MasterCard, we expect that the same decision will be forthcoming by the other credit card association.
Moving forward, this is a smart decision and one more confirming action that Visa recognizes that they were in error and are quickly trying to fix their business model; from creating an independent board, to less ownership by the banks, to posting interchange rates online (although mostly as an attempt to respond to merchant concerns) and now this.
The Visa Inc. May 9th press release is reprinted below.
SAN FRANCISCO, CA, May 8, 2008 Visa Inc. announced today that it will for the first time make its Visa International and Regional Operating Regulations available publicly, effective May 15, 2008.
The Operating Regulations, which will be available on Visa’s corporate website at www.corporate.visa.com, are the set of rules which govern the participation of issuing and acquiring financial institutions in the Visa system.
“As Visa continues to evolve to meet the needs of customers, we are committed to providing our partners and interested parties with greater insight into Visa’s operations,” says Joseph W. Saunders, Chairman and CEO, Visa Inc.“Greater transparency is one of the ways we hope to strengthen our working relationships in the marketplace.”
Previously, Visa Inc. made its Visa USA Operating Regulations available to merchants and third party agents under a non-disclosure agreement.On May 15, Visa’s rules will be publicly available to interested parties, including all Visa rules related to merchants’ participation in the system.However, to protect cardholder and merchant safety and the Visa system, Visa has omitted proprietary and competitive information, as well as certain details from the rules relating to the security of the network.For example, in the merchant rules, Visa has omitted authorization limits by country and processing codes which could aid fraudsters.
“Today’s announcement builds on our commitment to making Visa transparent in an increasingly competitive environment,” adds Saunders.“While our operating regulations only govern our client financial institutions, we believe that merchants and others will benefit from access to the rules, which provide a greater understanding of the complexities of electronic payments.”
Tell Your Elected Representatives to Support HR 5546, The Credit Card Fair Fee Act
Credit card fees known as interchange are hidden in the cost of nearly everything consumers buy. In 2006 alone, American consumers paid over $36 billion in credit card interchange fees. Even consumers who don’t use plastic pay more through higher prices. Visa issuers collectively set credit card interchange fees in secret and MasterCard issuers separately do the same. The fees can’t be negotiated and are not adequately disclosed to merchants or consumers.
Tell your elected representatives to support HR 5546, The Credit Card Fair Fee Act which stops the price-fixing by the credit card industry and provides an open and transparent process to negotiate credit card interchange fees.
Merchants do not have a “wonderful relationship” with Visa and MasterCard. Fact is we are suing them for what could amount to hundreds of billions of dollars in antitrust violations.
There is no transparency for inter interchange fees. Ask any merchant what any single electronic payment transaction was. If Visa and MasterCard want transparency, post the exact charge on every credit card receipt. Posting upwards of one-hundred pages on their website with encrypted interchange fee codes is not transparent.
Consumers do not know that they are being charged nearly 2% in interchange fees.
Interchange fees are illegally set by Visa, MasterCard and its member banks. This is illegal and identical to what the railroads did in the 1800s which forced the creation of the Sherman Antitrust act.
There is no competition. Visa and MasterCard control 80% of the entire electronic payment network. The fees are not competitive, any more than OPEC is competitive with its similar cartel-like pricing.
“The hearing was held by the House Judiciary Committee’s Task Force on Competition Policy and Antitrust Laws. It was delayed more than an hour due to prolonged votes on the House floor, according to a Judiciary Committee spokesman.”
“Bill Douglass, chief executive of gas retailer distributor Douglass Distributing Co. also noted that credit card companies collect 9 cents per gallon of gas sold, leaving many retailers with no profit from the gas they sell.”
WayTooHigh.com: The Credit Card Interchange Report, is edited by Mitch Goldstone, co-founder of California-based ScanMyPhotos.com, the international online photo preservation service.
Goldstone and co-owner, Carl Berman are also the lead plaintiffs and class representatives in a antitrust class-action litigation against Visa, MasterCard and major banks that was filed in 2005.
This informational web site was created to provide news and commentary updates only. None of the information posted on WayTooHigh.com is intended to constitute legal arguments; it reflects only the opinions of its co-editors and not of any other plaintiffs or other parties involved in the merchant antitrust litigation. The information is not guaranteed to be correct, complete, or current. We make no warranty, express or implied, about the accuracy or reliability of the information posted by WayTooHigh.com or at any other Web site to which this site is linked. (c) 2010
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Visa and MasterCard banks charge merchants a fee called interchange each time one of their cards is swiped to pay for a purchase. With the fee averaging about 2%, “swipe fee” collections totaled $48 billion in 2008, triple the $16 billion collected when NRF began tracking the fees in 2001. Visa and MasterCard rules effectively force merchants to pass the fees on to consumers by requiring them to be included in the advertised price of merchandise and making discounts for cash, checks or cheaper forms of plastic difficult. As a result, the average household paid an estimated $427 in higher prices in 2008, up from $159 in 2001.
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